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entitled 'Long-Term Care Insurance: Federal Program Compared Favorably 
with Other Products, and Analysis of Claims Trend Could Inform Future 
Decisions' which was released on March 31, 2006. 

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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

March 2006: 

Long-Term Care Insurance: 

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

GAO-06-401: 

GAO Highlights: 

Highlights of GAO-06-401, a report to congressional committees: 

Why GAO Did This Study: 

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

What GAO Found: 

During its first 3 years, the Federal Long Term Care Insurance Program 
offered benefits similar to those of other long-term care insurance 
products GAO reviewed. Most enrollees in the federal program and in 
individual and group products chose similar benefit amounts, 
elimination or waiting periods, and benefit periods. The federal 
program usually offered lower premiums than individual products for 
comparable benefits. Overall, annual premiums for the federal program 
averaged across three benefit plan designs were 46 percent lower for 
single people and 19 percent lower for married couples who were both 
the same age in comparison with similar individual products sold on 
March 31, 2005. 

The participation rate in the Federal Long Term Care Insurance Program 
for active federal civilian employees—5 percent—was comparable to the 
industry average in the group market, although enrollment in the 
federal program was lower than initially expected. The average age of 
all enrollees in the federal program was younger than the average age 
of enrollees in individual products and older than the average age of 
enrollees in group products. 

The Federal Long Term Care Insurance Program paid 39 percent of what it 
initially projected to pay for claims per enrollee. The number of 
claims paid per enrollee was also lower than initial projections. While 
the early claims experience was below expectations, it is still too 
early to determine whether this trend will continue or whether 
adjustments to the projected claims experience or premiums are 
indicated, because most claims are not expected to be submitted for 
many years. 

Federal Long Term Care Insurance Program Actual Claim Payments in the 
First 3 Years Compared with Expected Claim Payments over 35 Years: 

[See PDF for image] 

[End of figure] 

What GAO Recommends: 

GAO recommends that the Director of the Office of Personnel Management 
(OPM) (1) analyze the reasons for lower-than-expected early claims 
experience and, as appropriate, use the results to modify assumptions 
about the expected claims experience and (2) analyze the projections 
for the amount of premiums to be collected to pay for claims. OPM 
should report both analyses to Congress prior to the next contract 
negotiations for the administration of the federal program. 

In commenting on a draft of this report, OPM generally agreed with the 
report’s findings and said it would provide updated information on 
claims experience and premium setting to Congress. 

www.gao.gov/cgi-bin/getrpt?GAO-06-401. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact John Dicken at (202) 512-
7119 or dickenj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Federal Long Term Care Insurance Program Offered Benefits Comparable to 
Other Products, Usually at Lower Premiums: 

Federal Program Participation Was Comparable to Other Group Products, 
while Federal Enrollees Were Younger Than Enrollees in Individual 
Products and Older Than Enrollees in Group Products: 

Early Claims Experience in Federal Long Term Care Insurance Program Was 
Lower Than Expected, but It Is Too Soon to Determine Whether 
Adjustments Are Needed: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Data Request: 

Long-term Care Insurance Interviews: 

Appendix II: Federal Long Term Care Insurance Program Benefits: 

Prepackaged Benefit Plans in the Federal Long Term Care Insurance 
Program: 

Customized Benefits in the Federal Program: 

Other Benefits in the Federal Program: 

Enrollment in Federal Program Benefits: 

Appendix III: Annual Premiums for Three Benefit Packages Offered in the 
Federal Program and at Five Carriers: 

Appendix IV: Comments from the Office of Personnel Management: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Benefit Options in the Federal Long Term Care Insurance 
Program and in Individual and Group Products Sold from July 1, 2002, 
through March 31, 2005: 

Table 2: Benefit Options Chosen by Federal Long Term Care Insurance 
Program Enrollees and by Individual and Group Product Enrollees for New 
Policies Sold from July 1, 2002, through March 31, 2005: 

Table 3: Estimated Eligible Population and Actual Enrollees in the 
Federal Long Term Care Insurance Program, by Category: 

Table 4: Enrollee Characteristics of the Federal Long Term Care 
Insurance Program and of Individual and Group Products, July 1, 2002, 
through March 31, 2005: 

Table 5: Actual Claims per Enrollee as a Percentage of Expected Claims 
per Enrollee in the First 3 Years for the Federal Long Term Care 
Insurance Program: 

Table 6: Prepackaged Plans in the Federal Long Term Care Insurance 
Program: 

Table 7: Benefit Options in the Federal Long Term Care Insurance 
Program: 

Table 8: Federal Long Term Care Insurance Program Enrollment in 
Prepackaged Benefit Plans, Customized Benefits, and Alternative 
Insurance Plan from March 25, 2002, through March 31, 2005: 

Table 9: Federal Long Term Care Insurance Program Enrollment in 
Prepackaged Benefit Plans from March 25, 2002, through March 31, 2005: 

Table 10: Annual Premiums for Single People and Married Couples Who 
Were Both the Same Age for the Federal Long Term Care Insurance Program 
and for Five Carriers in the Individual Insurance Market for Package 1 
Sold on March 31, 2005: 

Table 11: Annual Premiums for Single People and Married Couples Who 
Were Both the Same Age for the Federal Long Term Care Insurance Program 
and for Five Carriers in the Individual Insurance Market for Package 2 
Sold on March 31, 2005: 

Table 12: Annual Premiums for Single People and Married Couples Who 
Were Both the Same Age for the Federal Long Term Care Insurance Program 
and for Five Carriers in the Individual Insurance Market for Package 3 
Sold on March 31, 2005: 

Figures: 

Figure 1: Average Annual Federal Premiums for Single People and for 
Married Couples Who Were Both the Same Age Compared with Averages for 
Individual Products, for Three Benefit Packages and Overall, Sold on 
March 31, 2005: 

Figure 2: Annual Premiums by Age for Single People and Married Couples 
Who Were Both the Same Age for the Federal Long Term Care Insurance 
Program and for Five Carriers Selling Individual Products for the Most 
Popular Federal Comprehensive Benefit Package Sold on March 31, 2005: 

Figure 3: Actual Claim Payments per 10,000 Enrollees in the First 3 
Years Compared with Expected Claim Payments per 10,000 Enrollees over 
35 Years for the Federal Long Term Care Insurance Program: 

Figure 4: Actual Number of Paid Claims per 10,000 Enrollees in the 
First 3 Years Compared with Expected Number of Paid Claims per 10,000 
Enrollees over 35 Years for the Federal Long Term Care Insurance 
Program: 

Abbreviations: 

ADL: activity of daily living: 
CalPERS: California Public Employees' Retirement System: 
HIPAA: Health Insurance Portability and Accountability Act: 
NAIC: National Association of Insurance Commissioners: 
OPM: Office of Personnel Management: 
Partners: Long Term Care Partners, LLC: 

United States Government Accountability Office: 

Washington, DC 20548: 

March 31, 2006: 

Congressional Committees: 

In 2004, about $193 billion was spent nationwide on nursing home and 
other long-term care services. Private insurance covered 7 percent of 
this amount, about $14 billion, while most long-term care services were 
financed by government programs, primarily Medicaid. The elderly--
people 65 years old and older--consume about two-thirds of all long-
term care services. As the elderly population begins to grow with the 
aging of the baby boomers, the increasing demand for long-term care 
services will continue to strain federal and state resources. Some 
policymakers propose that increased use of long-term care insurance, 
particularly by the baby boom generation, may be a means of reducing 
some of the future financial burden on public programs. In September 
2000, Congress passed the Long-Term Care Security Act. The act required 
that the federal government offer long-term care insurance to its 
employees, their families, and others.[Footnote 1] Congressional 
committee reports accompanying this act indicated that a long-term care 
insurance program could encourage more people to obtain long-term care 
insurance, serve as a model for other employer-sponsored programs 
across the nation,[Footnote 2] and possibly shift some of the future 
burden to private payment sources.[Footnote 3] 

In December 2001, at the conclusion of a competitive bidding process, 
the Office of Personnel Management (OPM)--the federal agency 
responsible for administering governmentwide compensation and benefit 
systems--contracted with Long Term Care Partners, LLC (referred to as 
Partners) for 7 years to provide long-term care insurance for active 
federal civilian employees, members of the uniformed services, and 
Postal Service employees; federal, military, and Postal Service 
retirees; qualified relatives; and certain others. Partners is a joint 
venture formed by two large carriers selling long-term care insurance 
products in the private market, John Hancock Life Insurance Company and 
Metropolitan Life Insurance Company. The Federal Long Term Care 
Insurance Program conducted limited early enrollment from March 25, 
2002, through May 15, 2002, and open enrollment from July 1, 2002, 
through December 31, 2002. From March 25, 2002, through March 31, 2005, 
218,890 employees, retirees, relatives, and others were enrolled in the 
federal program, making it the largest long-term care insurance program 
in the nation. 

The Long-Term Care Security Act also required that we conduct a study 
of the competitiveness of the federal program with individual and group 
products generally available in the private insurance market.[Footnote 
4] As agreed to by the committees of jurisdiction, this report 
addresses the following questions: 

* How do benefits and premiums for the Federal Long Term Care Insurance 
Program compare with those of other products available in the long-term 
care insurance market? 

* How do enrollment rates and the characteristics of enrollees in the 
Federal Long Term Care Insurance Program compare with those of other 
products available in the long-term care insurance market? 

* How does the early claims experience of the Federal Long Term Care 
Insurance Program compare with initial expectations? 

To obtain data on benefits, premiums, enrollment, and enrollee 
characteristics, we surveyed Partners, the California Public Employees' 
Retirement System (CalPERS),[Footnote 5] and five of the largest long-
term care insurance carriers.[Footnote 6] The five insurance carriers 
were AEGON USA,[Footnote 7] Bankers Life and Casualty Company, Genworth 
Financial, John Hancock Life Insurance Company, and Metropolitan Life 
Insurance Company. All five carriers sold products in the individual 
market, and two of the five carriers--John Hancock Life Insurance 
Company and Metropolitan Life Insurance Company--were also among the 
five largest carriers that sold products in the group market. We 
requested data from Partners on new policies sold during two time 
periods: (1) from March 25, 2002, through February 7, 2003, to 
correspond to the federal early enrollment and open enrollment 
periods[Footnote 8] and (2) from March 25, 2002, though March 31, 2005, 
to capture the full experience of the program's first 3 years. We asked 
CalPERS and the five carriers to provide data for policies sold from 
July 1, 2002, through March 31, 2005.[Footnote 9] We then compared the 
benefits offered, enrollment, and enrollee characteristics of the 
federal program, CalPERS, and the five carriers. To compare premiums, 
we asked CalPERS and the carriers to price the benefit packages offered 
in the federal program. In addition, we obtained data from Partners on 
the expected and early claims experience of the federal program to 
provide an early indicator of financial performance. Because of the 
proprietary nature of the data provided by the five carriers, we 
aggregated data across the individual and group carriers for reporting 
purposes. While we aggregated the CalPERS data with the private market 
group data in all cases, we also separately reported publicly available 
CalPERS data in two places because its experience in managing benefits 
for large numbers of public employees, retirees, and their families is 
most comparable to the federal program. 

To supplement the data we collected, we interviewed officials at OPM, 
Partners, CalPERS and the organization that administers its program, 
the five carriers, and five trade associations representing groups such 
as insurers and actuaries. We also interviewed three experts on long-
term care insurance. In addition, we reviewed several studies, 
including recent studies addressing (1) the long-term care insurance 
market, (2) buyers of a long-term care insurance product and those who 
considered buying coverage but decided not to buy, and (3) claims 
experience. We assessed the reliability of the data we obtained from 
Partners, CalPERS, and the five carriers and determined that the data 
were sufficiently reliable for the purposes of our study. (App. I 
provides more-detailed information on our methodology.) We performed 
our work from March 2005 through March 2006 in accordance with 
generally accepted government auditing standards. 

Results in Brief: 

Benefits offered during the first 3 years of the Federal Long Term Care 
Insurance Program and premiums associated with these benefits generally 
compared favorably with those offered by other long-term care insurance 
products sold during the same period. Compared to individual and group 
products, the federal program offered similar benefits--long-term care 
services provided in facilities and in the home with coverage for 
specified dollar amounts and periods to begin after a predetermined 
waiting period. However, the federal program offered fewer options 
within these benefits, especially compared with individual products. 
Most federal program enrollees and enrollees in individual and group 
products chose benefits in similar ranges. Annual premiums in the 
federal program averaged across the three most commonly purchased 
federal benefit packages were 46 percent lower for single people and 19 
percent lower for married couples who were both the same age than the 
premiums for similar individual products. Although the premium 
estimates reported for individual products included discounts for 
married couples, they did not include discounts for enrollees who were 
considered to be in good health. Annual premiums for each of the three 
different federal benefit packages were always lower for single 
enrollees compared with premiums for the individual products we 
reviewed, while premiums were lower in the federal program for married 
couples who were both the same age in most, but not all, cases. In 
contrast, annual federal premiums averaged across the three benefit 
packages were 3 percent higher than those at CalPERS, the one group 
product for which we had premium data. 

Five percent of eligible active federal civilian employees enrolled in 
the federal program, which is similar to the enrollment rates of other 
groups. Yet overall enrollment was 36 percent lower than the initial 
expectations established by Partners, in part because active military 
members and Postal Service employees enrolled in low numbers. During 
the 3-year period covered by our study, the average age of enrollees in 
the federal program at the time of enrollment was 56 years old, which 
is younger than the average age of 60 for individual products we 
reviewed and older than the average age of 52 for group products we 
reviewed. As was true for the individual and group products, more women 
than men purchased coverage in the federal program during the 3-year 
period. 

The early claims experience of the Federal Long Term Care Insurance 
Program was below the expectations established by Partners. The federal 
program paid 39 percent of what it expected to pay for claims per 
enrollee during the first 3 years of the program. The number of paid 
claims per enrollee was also below expected levels. While there was a 
discrepancy between the actual and expected claims experience during 
these early years, it is not known whether the discrepancy indicates 
the future trend or is a brief departure from the expected claims 
experience over the long term. In general, the expected claims 
experience in the first years of a long-term care insurance program is 
very low relative to the longer term because the majority of claims are 
unlikely to be submitted for many years. Furthermore, the claims 
experience is only one of many factors affecting premiums. While about 
half of the total claims payment amount was spent on facility care 
during the first 3 years, this type of care represented less than a 
quarter of the total number of claims. The most common medical 
conditions prompting claims in the early years of a policy for the 
federal program were cancer, stroke, and injuries and poisoning. Across 
the individual and group products we reviewed, the most common medical 
conditions prompting claims were also cancer, stroke, and injuries, as 
well as cognitive problems, musculoskeletal disorders, cardiac disease, 
and arthritis. 

We recommend that the Director of OPM take the following two actions. 
First, the Director should analyze the reasons for the lower-than-
expected early claims experience and, as appropriate, use the results 
of this analysis to modify assumptions about the expected claims 
experience. Second, the Director should analyze the projections for the 
amount of premiums to be collected to pay for claims, including an 
analysis of the assumptions made for the projections that are related 
to future claims experience and other factors affecting premiums. OPM 
should report both analyses to Congress prior to the next contract 
negotiations. 

In its written comments on a draft of this report, OPM generally agreed 
with the report's findings. In response to our recommendations, OPM 
indicated that it intends to provide updated information on claims 
experience and premium setting in its written recommendation to 
Congress before entering into a new contract for administration of the 
Federal Long Term Care Insurance Program, in accordance with the Long-
Term Care Security Act. OPM stated that it believes an additional 
report on the issues of claims experience and projections for the 
amount of premiums to be collected is not needed. OPM also indicated in 
its comments that the expectations about enrollment and claims 
experience were established by Partners prior to the start of the 
federal program, rather than established by the marketplace, and we 
revised the report accordingly. 

Background: 

Long-term care services assist people who need help in performing 
activities of daily living (ADLs), such as eating, bathing, and 
dressing.[Footnote 10] As some of these services can be expensive, 
especially services provided in a nursing home, long-term care 
insurance helps people pay for the cost of care. However, relatively 
few people have obtained long-term care insurance through products sold 
in the individual and group markets. To help federal employees, 
retirees, and others obtain coverage, the federal government began 
offering the opportunity to apply for long-term care insurance in 2002 
through an employer-sponsored group program in which enrollees pay the 
entire cost of their premium. 

Long-term Care: 

Long-term care refers to a range of support services provided to people 
who, because of illness or disability, generally are unable to perform 
ADLs for an extended period. Long-term care services include medical, 
social, and personal services. Care may be provided in various 
settings, including facilities such as nursing homes or assisted living 
facilities, a person's own home, or the community. Both paid and unpaid 
caregivers may provide long-term care services. As a person ages, his 
or her ability to perform basic physical functions typically declines, 
increasing the likelihood that he or she will need long-term care 
services. 

Long-term Care Insurance: 

People can purchase long-term care insurance directly from carriers 
that sell products in the individual market or can enroll in products 
offered by employer-sponsored and other groups.[Footnote 11] Long-term 
care insurance policies sold in the individual and group markets cover 
costs associated with long-term care. For a specified premium amount 
that is designed--but not guaranteed--to remain level over time, the 
carrier agrees to provide covered benefits under an insurance contract. 
First sold in the 1970s, long-term care insurance has evolved from 
initially offering coverage for nursing home care only to offering 
comprehensive coverage. Comprehensive coverage pays for care provided 
in facilities such as nursing homes and other settings such as a 
person's home. Insurance is generally purchased for defined daily 
benefit amounts and benefit periods, with elimination, or waiting, 
periods. For example, long-term care insurance might provide coverage 
at $100 per day for care provided in a nursing home or in other 
settings for 3 years after a waiting period of 90 days. Because long-
term care insurance claims might not be filed for many years after the 
product is purchased, the insured can purchase protection against 
inflation, which can increase the daily benefit amount covered. In 
addition, long-term care insurance products can (1) cover home care at 
varying percentages of the daily benefit amount; (2) offer people a 
range of other types of options, such as policies that return a portion 
of the premium payments if the person dies; and (3) include selected 
benefits, such as international coverage or care-coordination services 
that, among other things, provide information about long-term care 
services to the enrollee and monitor the receipt of services. 

Many factors affect long-term care insurance premiums. Carriers charge 
higher premiums for richer benefits; for example, higher daily benefit 
amounts, longer benefit periods, and higher levels of inflation 
protection will increase the cost. Premiums are based on the age of the 
applicant, with premiums increasing more rapidly as age increases. 
Premiums are also based on the health status of the applicant. Most 
carriers selling coverage in the individual market assign applicants to 
one of three general rating categories based on health status when 
underwriting the coverage--preferred, standard, or substandard--with 
associated discounts and surcharges.[Footnote 12] In addition, carriers 
in the individual market usually offer discounts to married couples 
when both spouses purchase coverage. Products sold in the group market 
may be sold on a guaranteed issue basis during an open enrollment 
period, with no or limited underwriting for employees actively at work 
who enroll through an employer-sponsored program, and the products 
generally do not provide discounts for spouses. Carriers cannot 
increase a particular person's premiums but can increase premiums for a 
group of people who bought the same type of policy when the carrier can 
demonstrate that anticipated costs will exceed premium revenue. Carrier 
pricing assumptions, including projected interest rates, morbidity or 
illness rates, and lapse rates--the number of people expected to drop 
their policies over time--all affect premium rates and rate setting. 

Carriers estimate the total amount of premiums to be collected for long-
term care insurance policies sold as well as projected claims and 
administrative costs for these policies using an anticipated lifetime 
loss ratio. This ratio describes what portion of total premiums is 
expected to be paid for claims for the reimbursement of the costs of 
long-term care over the life of a set of policies.[Footnote 13] The 
portion of premiums not spent on claims is used to pay for 
administrative costs, such as marketing, agent commissions, claims 
handling, overhead, and taxes, and for profits. In the past, National 
Association of Insurance Commissioners (NAIC) model regulations for 
long-term care insurance stated that carriers should spend a minimum of 
60 percent of collected premiums on claims.[Footnote 14] However, in 
model regulations released in August 2000, NAIC recommended that 
carriers price their products high enough initially to prevent the need 
for future rate increases rather than target a minimum percentage to be 
spent on claims. So far, according to NAIC, a majority of states have 
adopted long-term care insurance regulations based on the 2000 NAIC 
model, while some states still require minimum loss ratios. Many large 
carriers set premium rates on a national rather than regional basis. 
Carriers also price to cover a profit margin and administrative costs 
as well as to meet minimum loss ratios. 

Few claims are expected to be submitted during the early years of a 
long-term care insurance policy. As a result of underwriting, it is 
unlikely that many people could meet the eligibility requirements to 
buy the policy yet submit a claim within 3 years. Industry experts 
suggested that the effects of underwriting begin to decline and the 
rate of claim submissions starts to increase after about 3 to 7 years. 
The rate of increase in claim submissions depends on the average age of 
the enrollees, with most long-term care insurance claims submitted when 
people reach their mid-70s to mid-80s. Industry experts also noted that 
the rate of claim submissions in the federal program is expected to 
peak 25 years or more after the program began. Because the average age 
of enrollees in the individual market is higher than the average age of 
enrollees in the federal program, the rate of claim submissions is 
likely to peak earlier in the individual market, after 15 to 25 years. 
The rate of claim submissions is likely to peak after 30 to 40 years in 
the group market because of the younger average age of its enrollees. 

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) 
specified conditions under which long-term care insurance benefits and 
premiums would receive favorable federal income tax treatment and 
provided specific protections to people who purchased tax-qualified 
plans.[Footnote 15] Long-term care insurance plans must meet certain 
requirements contained in HIPAA to be considered tax-
qualified.[Footnote 16] For example, according to HIPAA, a plan must 
begin coverage when a person is certified to need substantial 
assistance with at least two of the six ADLs and a disability is 
expected to last 90 or more days, or to need regular supervision 
because of a severe cognitive impairment. In addition, federally tax-
qualified plans must comply with the NAIC long-term care insurance 
model act and regulations in effect as of January 1993, as incorporated 
into HIPAA.[Footnote 17] These provide certain consumer protections, 
such as preventing a carrier from (1) not renewing a long-term care 
insurance policy because of age or deteriorating health and (2) 
increasing the premium of an existing policy because of a person's age 
or claims filed. Another consumer protection was that carriers had to 
offer inflation protection as specified in the NAIC model regulations. 

Each state establishes its own long-term care insurance laws and 
regulations that cover areas such as benefits, premium setting, and 
consumer protections.[Footnote 18] As a result, product requirements in 
the individual and group markets can vary among the states. According 
to NAIC, 41 states based their long-term care insurance regulations on 
the NAIC model, 7 based their regulations partially on the model, and 3 
did not follow the model. 

Long-term Care Insurance Marketplace: 

The number of long-term care insurance policies sold has been small--
about 9 million as of 2002, the most recent year for which data were 
available.[Footnote 19] About 80 percent of these policies were sold 
through the individual insurance market and the remaining 20 percent 
were sold through the group market. In March 2005, 13 percent of full-
time workers in private industry had access to employer-sponsored long-
term care insurance benefits; within private industry, 21 percent of 
workers in large establishments with 100 or more workers had access to 
this benefit.[Footnote 20] 

People purchase policies from carriers in the individual market, 
usually through agents or brokers, and choose their own benefits from 
among a range of options the carriers offer. Groups--for example, 
employers, associations, or unions--purchase policies from carriers in 
the group market. Groups usually design the benefits, and enrollees are 
often given some benefit options from which to choose, for example, 
differing daily benefit amounts and benefit periods. However, benefit 
choices offered in employer-sponsored group products tend to be more 
limited than those that are available in the individual insurance 
market. Some groups offer benefit packages in which the benefit options 
are predetermined. In contrast to health insurance, where employers 
often contribute a share of the premium costs, enrollees in group long-
term care insurance coverage usually pay the entire premium. 

A recent downturn in the long-term care insurance industry has led to 
more conservative assumptions when setting premiums and consolidation 
among carriers. The long-term care insurance industry experienced 18 
percent annual growth in the number of policies sold from 1987 through 
2002, but the industry has experienced a downturn in more-recent years. 
Beginning in 2003, many carriers in the individual market raised 
premiums, left the marketplace, or consolidated to form larger 
companies. This activity occurred in response to several factors 
including high administrative expenses relative to premiums; lower-than-
expected lapse rates, which increased the number of people likely to 
submit claims; low interest rates, which reduced the expected return on 
investments; and new government regulations limiting direct marketing 
by telephone. Many carriers revised the assumptions used in setting 
their premium rates, taking a more conservative approach that led to 
higher premiums, while state regulators increased their oversight of 
the industry. Currently, several large carriers dominate the coverage 
sold in the individual and group markets as a result of mergers and 
acquisitions, and sales in the group market are growing faster than in 
the individual market. 

Federal Long Term Care Insurance Program: 

The federal government began offering group long-term care insurance 
benefits in 2002 for federal employees, retirees, and certain other 
people. When the Federal Long Term Care Insurance Program began, 
eligible people could apply for benefits during two specified time 
periods: (1) an early enrollment period for benefit options that were 
somewhat limited[Footnote 21] that ran from March 25, 2002, through May 
15, 2002, intended for people who were well-informed about long-term 
care insurance and were eager to enroll in the federal program and (2) 
an open enrollment period for all benefit options that ran from July 1, 
2002, through December 31, 2002. Active and retired federal and Postal 
Service employees, active and retired members of the uniformed 
services, qualified relatives, and certain others are eligible to apply 
for federal long-term care insurance benefits.[Footnote 22] Following 
the open enrollment period, eligible people could apply at any time. 

The federal program determines eligibility for long-term care insurance 
through underwriting. During the early and open enrollment periods, the 
program used an abbreviated underwriting application to determine 
eligibility for active employees and active members of the uniformed 
services and their spouses who applied. All other applicants, including 
retirees and qualified relatives, used the full underwriting 
application, which was similar to underwriting in the individual 
insurance market. Since the conclusion of the open enrollment period, 
newly hired federal and Postal Service employees and newly active 
members of the uniformed services who apply for long-term care 
insurance within 60 days of employment can do so using an abbreviated 
application, as can their spouses.[Footnote 23] All other applicants 
must use the full underwriting application. 

The federal program offers four prepackaged plan designs, each with a 
90-day elimination period, a choice of two types of inflation 
protection--either automatic compound inflation protection or the 
future purchase option[Footnote 24]--and the following benefit options: 

* Package 1--$100 daily benefit amount for comprehensive coverage and 3-
year benefit period, 

* Package 2--$150 daily benefit amount for comprehensive coverage and 5-
year benefit period, 

* Package 3--$150 daily benefit amount for comprehensive coverage and 
an unlimited benefit period, and: 

* Package 4--$100 daily benefit amount for facilities-only coverage and 
3-year benefit period. 

If not choosing a prepackaged plan, an enrollee in the federal program 
also has several options for customizing benefits. The federal program 
was designed to comply with the NAIC model regulations and HIPAA tax-
qualification standards, which specify that certain benefit options be 
offered. (App. II provides more information on federal long-term care 
insurance benefits and enrollment in these benefits.) 

The federal program provides reimbursement for costs of care when an 
enrollee is unable to perform at least two ADLs for an expected period 
of at least 90 days or needs substantial supervision because of a 
severe cognitive impairment. Reimbursement is based on the benefits 
chosen by the enrollee. The federal government does not contribute to 
the cost of coverage, so an enrollee pays the entire premium for the 
benefits chosen. 

OPM, rather than the states, regulates the federal program, and 
Partners administers the program in accordance with the requirements of 
the contract between OPM and Partners. The contract--which was signed 
on December 18, 2001, and extends for a period of 7 years--defines key 
administrative requirements including who controls program assets and 
how profits are determined. The contract requires that the parent 
companies of Partners--John Hancock Life Insurance Company and 
Metropolitan Life Insurance Company--must hold federal program assets 
in accounts separate from all their other businesses. At the end of the 
contract period, OPM may decide to enter into a new contract with 
Partners. However, if OPM selects a different contractor at that time, 
the financial assets of the federal program would be transferred to the 
new contractor. The contract also specifies how Partners earn a profit 
each year. The profit formula consists of two parts: (1) some of the 
profit is capped at 6.5 percent of premiums collected in a year--nearly 
half of this type of profit is subject to performance criteria while 
the rest is guaranteed--and (2) some of the profit is based on the 
performance of the total assets of the federal program being managed by 
Partners to pay future claims--this type of profit consists of 0.3 
percent of the total assets, called a "risk charge." Partners must pay 
federal taxes on their total profit, but may charge other taxes to the 
federal program. Partners also collects investment-management fees that 
are less than 0.2 percent of total assets. No profit is allowed if the 
premiums are not sufficient to cover claims and expenses. While OPM 
expects premium rates to remain level over an enrollee's lifetime, 
Partners may raise or lower premiums for groups of enrollees during the 
contract period with OPM's agreement. Additionally, premium rates may 
be changed at the time of a new contract. 

Federal Long Term Care Insurance Program Offered Benefits Comparable to 
Other Products, Usually at Lower Premiums: 

The federal program offered benefits that were similar to those of 
other long-term care insurance products we reviewed and usually offered 
lower premiums for comparable benefits in individual products. While 
federal program enrollees could choose from many options to customize 
their benefits, a broader range of options was available in the other 
products we reviewed, especially in the individual products. However, 
despite the broader range of options available in the other products, 
most enrollees in the federal program and in individual and group 
products chose similar daily benefit amounts, elimination periods, and 
benefit periods. A greater percentage of federal enrollees chose 
automatic compound inflation protection compared with enrollees in 
other products. Overall, annual premiums in the federal program 
averaged across three benefit plan designs were lower for both single 
people and married couples who were both the same age compared with 
similar individual products sold on March 31, 2005.[Footnote 25] 
Moreover, of total premiums projected to be collected over the life of 
the coverage sold during the study period, the federal program expected 
to pay a higher percentage in claim payments and a lower percentage in 
administrative costs compared with individual and group products. 

Federal Program Benefits Were Similar to Those in Individual and Group 
Products: 

Long-term care insurance benefit options were similar in the federal 
program and in individual and group products we reviewed. While the 
federal program offered over 500 possible benefit option combinations 
in addition to the four prepackaged benefit plans, other products, 
especially individual products, offered more possible benefit 
combinations and more extensive customization in daily benefit amounts 
and in elimination and benefit periods.[Footnote 26] Benefits offered 
in the federal program and in the individual and group products we 
reviewed were covered by consumer protections required for HIPAA tax-
qualified plans. These consumer protections included, among other 
provisions, that enrollees be offered an option to protect their 
benefits against inflation. However, some individual and group product 
enrollees were also offered the opportunity to purchase policies that 
did not meet requirements for HIPAA tax-qualified plans. In addition, 
according to officials at OPM and Partners, the federal program offered 
several unique benefits, including payment to family members providing 
informal care, international coverage, and a process allowing third-
party review of denied claims. Table 1 summarizes the benefit options 
in the federal program and in the individual and group products we 
reviewed. 

Table 1: Benefit Options in the Federal Long Term Care Insurance 
Program and in Individual and Group Products Sold from July 1, 2002, 
through March 31, 2005: 

Benefit options: Coverage type; 
Federal program[A]: Comprehensive or Facilities-only; Individual 
products: Comprehensive, Facilities-only, or Home-care-only[B]; 
Group products: Comprehensive or Facilities-only. 

Benefit options: Daily benefit amounts; 
Federal program[A]: $50 to $300; 
Individual products: $18 to $500[C]; 
Group products: $35 to $465. 

Benefit options: Elimination periods; 
Federal program[A]: 30 days or 90 days; 
Individual products: 0 days to 730 days; 
Group products: 20 days to 180 days. 

Benefit options: Benefit periods; 
Federal program[A]: 3 years, 5 years, or lifetime; 
Individual products: 1 year to lifetime; 
Group products: 1 year to lifetime. 

Benefit options: Inflation protection[D]; 
Federal program[A]: Automatic compound or Future purchase option; 
Individual products: Automatic compound, Simple, Future purchase 
option, Other, or None; 
Group products: Automatic compound, Future purchase option, Other, or 
None. 

Source: GAO analysis of data provided by Partners, five carriers 
selling individual products, CalPERS, and two carriers selling group 
products. 

[A] Some federal enrollees, members of the uniformed services, and 
their spouses who could apply for the federal program using an 
abbreviated application, but who were denied regular coverage, were 
offered coverage in the Alternative Insurance Plan. This Plan covered 
nursing homes only, had a 180-day elimination period, provided coverage 
for 2 years, and started with a weekly benefit amount of $200. 

[B] One carrier reported selling individual products with home-care-
only coverage. 

[C] One carrier reported that one policy was sold with a daily benefit 
amount of $822. 

[D] With automatic compound inflation protection, benefit amounts 
increase by a stated percentage of the previous year's amount with 
generally no change in premiums. For example, a $100 daily benefit 
amount with automatic compound inflation protection of 5 percent will 
go up by $5 to $105 at the beginning of the second year. At the 
beginning of the third year, benefits will go up by 5 percent of $105 
or by $5.25 to $110.25. Simple inflation protection increases benefits 
by the same amount each year with generally no change in premiums. For 
example, a $100 daily benefit amount with simple inflation protection 
of 5 percent will go up by $5 each year. The future purchase option 
offers the ability to increase benefits at predetermined time intervals 
for an additional cost. Other inflation-protection options include a 
deferred inflation option, where the enrollee can increase benefits at 
a later date chosen by the enrollee. 

[End of table] 

Most enrollees in the federal program chose comprehensive coverage and 
daily benefit amounts, elimination periods, and benefit periods similar 
to those chosen by enrollees in individual and group products. Most 
enrollees in all products chose to have the cost of long-term care 
services reimbursed at a rate in the range of $100 to $199 per day and 
chose an elimination period of 90 days or greater[Footnote 27] and a 
benefit period from 3 to 5 years. With regard to inflation protection, 
over two-thirds of federal program enrollees chose automatic compound 
inflation protection, a higher proportion than for enrollees in 
individual and group products. Federal enrollees who did not choose 
automatic compound inflation protection received the future purchase 
option as a default. Several experts and industry officials said the 
federal government was a leader in the group market by encouraging 
enrollees to choose more comprehensive inflation-protection benefits. 
Table 2 summarizes the benefit options chosen by enrollees in the 
federal program and in individual and group products. 

Table 2: Benefit Options Chosen by Federal Long Term Care Insurance 
Program Enrollees and by Individual and Group Product Enrollees for New 
Policies Sold from July 1, 2002, through March 31, 2005: 

Coverage type: Comprehensive; 
Percentage choosing benefit option: Federal program enrollees[A]: 89; 
Percentage choosing benefit option: Average for individual product 
enrollees: 91; 
Percentage choosing benefit option: Average for group product 
enrollees: 91. 

Coverage type: Facilities-only; 
Percentage choosing benefit option: Federal program enrollees[A]: 11; 
Percentage choosing benefit option: Average for individual product 
enrollees: 3; 
Percentage choosing benefit option: Average for group product 
enrollees: 9. 

Coverage type: Other; 
Percentage choosing benefit option: Federal program enrollees[A]: <1; 
Percentage choosing benefit option: Average for individual product 
enrollees: 6; 
Percentage choosing benefit option: Average for group product 
enrollees: n.a. 

Daily benefit amount[B]: Less than $100; 
Percentage choosing benefit option: Federal program enrollees[A]: 3; 
Percentage choosing benefit option: Average for individual product 
enrollees: 11; 
Percentage choosing benefit option: Average for group product 
enrollees: 12. 

Daily benefit amount[B]: $100 to $149; 
Percentage choosing benefit option: Federal program enrollees[A]: 49; 
Percentage choosing benefit option: Average for individual product 
enrollees: 53; 
Percentage choosing benefit option: Average for group product 
enrollees: 44. 

Daily benefit amount[B]: $150 to $199; 
Percentage choosing benefit option: Federal program enrollees[A]: 42; 
Percentage choosing benefit option: Average for individual product 
enrollees: 25; 
Percentage choosing benefit option: Average for group product 
enrollees: 18. 

Daily benefit amount[B]: $200 and greater; 
Percentage choosing benefit option: Federal program enrollees[A]: 5; 
Percentage choosing benefit option: Average for individual product 
enrollees: 11; 
Percentage choosing benefit option: Average for group product 
enrollees: 26. 

Elimination period: Less than 30 days; 
Percentage choosing benefit option: Federal program enrollees[A]: n.a; 
Percentage choosing benefit option: Average for individual product 
enrollees: 8; 
Percentage choosing benefit option: Average for group product 
enrollees: <1. 

Elimination period: 30 days to 89 days; 
Percentage choosing benefit option: Federal program enrollees[A]: 12; 
Percentage choosing benefit option: Average for individual product 
enrollees: 21; 
Percentage choosing benefit option: Average for group product 
enrollees: 30. 

Elimination period: 90 days and greater; 
Percentage choosing benefit option: Federal program enrollees[A]: 88; 
Percentage choosing benefit option: Average for individual product 
enrollees: 71; 
Percentage choosing benefit option: Average for group product 
enrollees: 70. 

Benefit period: Less than 3 years; 
Percentage choosing benefit option: Federal program enrollees[A]: <1; 
Percentage choosing benefit option: Average for individual product 
enrollees: 14; 
Percentage choosing benefit option: Average for group product 
enrollees: 6. 

Benefit period: 3 years; 
Percentage choosing benefit option: Federal program enrollees[A]: 49; 
Percentage choosing benefit option: Average for individual product 
enrollees: 23; 
Percentage choosing benefit option: Average for group product 
enrollees: 13. 

Benefit period: Greater than 3 years to 5 years; 
Percentage choosing benefit option: Federal program enrollees[A]: 31; 
Percentage choosing benefit option: Average for individual product 
enrollees: 27; 
Percentage choosing benefit option: Average for group product 
enrollees: 54. 

Benefit period: Greater than 5 years to 20 years; 
Percentage choosing benefit option: Federal program enrollees[A]: n.a; 
Percentage choosing benefit option: Average for individual product 
enrollees: 10; 
Percentage choosing benefit option: Average for group product 
enrollees: 4. 

Benefit period: Lifetime; 
Percentage choosing benefit option: Federal program enrollees[A]: 20; 
Percentage choosing benefit option: Average for individual product 
enrollees: 26; 
Percentage choosing benefit option: Average for group product 
enrollees: 23. 

Inflation protection[C]: Automatic compound; 
Percentage choosing benefit option: Federal program enrollees[A]: 68; 
Percentage choosing benefit option: Average for individual product 
enrollees: 55; 
Percentage choosing benefit option: Average for group product 
enrollees: 18. 

Inflation protection[C]: Simple; 
Percentage choosing benefit option: Federal program enrollees[A]: n.a; 
Percentage choosing benefit option: Average for individual product 
enrollees: 22; 
Percentage choosing benefit option: Average for group product 
enrollees: n.a. 

Inflation protection[C]: Future purchase option; 
Percentage choosing benefit option: Federal program enrollees[A]: 32; 
Percentage choosing benefit option: Average for individual product 
enrollees: 7; 
Percentage choosing benefit option: Average for group product 
enrollees: 32. 

Inflation protection[C]: None; 
Percentage choosing benefit option: Federal program enrollees[A]: n.a; 
Percentage choosing benefit option: Average for individual product 
enrollees: 16; 
Percentage choosing benefit option: Average for group product 
enrollees: 7. 

Inflation protection[C]: Other; 
Percentage choosing benefit option: Federal program enrollees[A]: <1; 
Percentage choosing benefit option: Average for individual product 
enrollees: 1[D]; 
Percentage choosing benefit option: Average for group product 
enrollees: 42[E]. 

Source: GAO analysis of data provided by Partners, five carriers 
selling individual products, CalPERS, and two carriers selling group 
products. 

Notes: Individual entries may not add to 100 percent because of 
rounding. 

n.a. = not applicable. 

[A] Federal program enrollees include those who chose a prepackaged 
plan, designed their own customized plan, or chose the Alternative 
Insurance Plan from March 25, 2002, through March 31, 2005. 

[B] Daily benefit amounts for individual products were from four of the 
five carriers. At the fifth carrier, 80 percent of the enrollees chose 
daily benefit amounts that were greater than $75 and less than or equal 
to $175. 

[C] With automatic compound inflation protection, benefit amounts 
increase by a stated percentage of the previous year's amount with 
generally no change in premiums. For example, a $100 daily benefit 
amount with automatic compound inflation protection of 5 percent will 
go up by $5, to $105, at the beginning of the second year. At the 
beginning of the third year, benefits will go up by 5 percent of $105, 
or by $5.25, to $110.25. Simple inflation protection increases benefits 
by the same amount each year with generally no change in premiums. For 
example, a $100 daily benefit amount with simple inflation protection 
of 5 percent will go up by $5 each year. The future purchase option 
offers the ability to increase benefits at predetermined time intervals 
for an additional cost. Other inflation-protection options include a 
deferred inflation option, where the enrollee can increase benefits at 
a later date chosen by the enrollee. 

[D] One carrier reported a deferred inflation option, where the 
enrollee can increase benefits at a later date chosen by the enrollee. 

[E] One carrier reported optional inflation protection, which is 
similar to a future purchase option. Under optional inflation 
protection, an enrollee is offered the chance to increase benefits at 
predetermined time intervals whether or not the enrollee has submitted 
a claim for benefits, while the future purchase option is offered by 
this carrier only if the enrollee has not submitted a claim. 

[End of table] 

Premiums for Three Federal Benefit Packages Were Usually Lower Than 
Those for Comparable Benefits in Other Products: 

Federal Long Term Care Insurance Program annual premiums were usually 
lower than annual premiums for individual products for three benefit 
packages with similar benefit options sold on March 31, 2005.[Footnote 
28] Overall, the average premium in the federal program for the three 
benefit packages for single people was 46 percent lower than average 
premiums for individual products we reviewed, while premiums for 
married couples who were both the same age were 19 percent lower. 
However, the premium estimates reported for individual products do not 
include discounts for good-health status, which several carrier 
officials said were about 10 percent to 15 percent and apply to about 
one-third of all enrollees.[Footnote 29] Figure 1 compares average 
annual premiums for three benefit packages and overall for the federal 
program with average annual premiums for the individual products we 
reviewed at five carriers. 

Figure 1: Average Annual Federal Premiums for Single People and for 
Married Couples Who Were Both the Same Age Compared with Averages for 
Individual Products, for Three Benefit Packages and Overall, Sold on 
March 31, 2005: 

[See PDF for image] 

Notes: We analyzed annual premiums for the three federal benefit 
packages with comprehensive coverage available in the federal program. 
The three benefit packages were Package 1--$100 daily benefit amount 
and 3-year benefit period, Package 2--$150 daily benefit amount and 5- 
year benefit period, and Package 3--$150 daily benefit amount and an 
unlimited benefit period. 

Each package had a 90-day elimination period and included the automatic 
compound inflation-protection option. 

For the five carriers selling individual products that we reviewed, 
single premiums represented a 40-, 50-, 60-, and 70-year-old person 
underwritten into the standard rating category, the category where 
carriers place most enrollees after they assess the risk. Premiums for 
married couples represented situations where both were the same age--
40, 50, 60, and 70 years old--and both were written into the standard 
rating category. Premiums for couples at the five carriers reflected 
either a 30-percent or a 40-percent discount per couple. The federal 
program did not provide discounts for spouses; therefore, for the 
federal program we doubled the premiums charged for single people. For 
each benefit package, we averaged premiums for single people and 
averaged the premiums for married couples who were both the same age 
across the four age categories. We assumed there was no discount for 
good health. 

All benefits chosen by an enrollee affect the pricing of the package to 
some degree. Carriers provided premiums for the major benefit options 
most similar to the federal packages that had the largest effect on 
premiums--daily benefit amounts, benefit periods, elimination periods, 
and inflation protection. 

[End of figure] 

The pattern of lower premiums in the federal program compared with 
those in the individual products remained consistent in different age 
groups as well as for single people and married couples. Figure 2 shows 
the range in annual premiums in the individual products we reviewed 
relative to annual federal premiums for single people and married 
couples who were both the same age, by age group, for the most popular 
federal comprehensive benefit package. Appendix III provides more 
information on annual federal and individual product premiums for the 
benefit packages we reviewed. 

Figure 2: Annual Premiums by Age for Single People and Married Couples 
Who Were Both the Same Age for the Federal Long Term Care Insurance 
Program and for Five Carriers Selling Individual Products for the Most 
Popular Federal Comprehensive Benefit Package Sold on March 31, 2005: 

[See PDF for image] 

Notes: Premiums shown are for the federal program's Comprehensive 100 
benefit package (Package 1), the most popular federal benefit package 
purchased through March 31, 2005. Package 1 included a $100 daily 
benefit amount, 3-year benefit period, 90-day elimination period, and 
the automatic compound inflation-protection option. One carrier 
reported premiums for a 100-day elimination period rather than for a 90-
day period. 

For the five carriers selling individual products we reviewed, premiums 
were for the standard rating category. The federal program did not use 
rating categories. Premiums for married couples who were both the same 
age at the five carriers reflected either a 30-percent or a 40-percent 
discount. The federal program did not provide discounts for spouses; 
therefore, we doubled the premiums the federal program charged for 
single people. We assumed there was no discount for good health. 

All benefits chosen by an enrollee affect the pricing of the package to 
some degree. Carriers provided premiums for the major benefit options 
most similar to the federal program that had the largest effect on 
premiums--daily benefit amounts, benefit periods, elimination periods, 
and inflation protection. 

[End of figure] 

When compared with premiums offered by CalPERS, the only group product 
for which we had premium information, average federal premiums were 
higher for two of the three packages.[Footnote 30] Overall, the average 
annual federal premium for single people and for married couples who 
were both the same age for the three benefit packages combined was 3 
percent higher than the average annual premium for CalPERS. 

Federal Program Expects to Spend Higher Proportion of Premium on Claims 
and Lower Proportion on Administrative Costs Than Individual and Group 
Products: 

As measured by the anticipated lifetime loss ratio,[Footnote 31] the 
federal program expects to spend a higher proportion of collected 
premium on claims and a lower proportion of collected premium on 
administrative costs than individual and group products. The Federal 
Long Term Care Insurance Program had a higher anticipated lifetime loss 
ratio than the average anticipated lifetime loss ratios for the 
individual and group products we reviewed[Footnote 32]--75 percent for 
the federal program, compared with 59 percent for individual products 
and 68 percent for group products.[Footnote 33] The federal program 
expected to pay out in claim payments three-quarters of the $3.1 
billion in premiums it projected would be collected over the life of 
the policies for all policies sold from March 25, 2002, through March 
31, 2005. The federal program expected to spend the remaining amount of 
collected premiums--25 percent--on administrative costs, including 
marketing, underwriting, claims handling, overhead, and taxes, and on 
profits. For individual products sold during July 1, 2002, through 
March 31, 2005, individual market carriers estimated that an average of 
41 percent of total premiums collected would cover administrative costs 
and profits. Unlike the federal program, these administrative costs 
included agent commissions, which averaged 17 percent of premiums 
collected for the individual products we reviewed, or about half of 
their administrative costs. For group products, carriers estimated that 
an average of 32 percent of total premiums collected for coverage sold 
during this time period would cover administrative costs and profits. 

Federal Program Participation Was Comparable to Other Group Products, 
while Federal Enrollees Were Younger Than Enrollees in Individual 
Products and Older Than Enrollees in Group Products: 

The employee participation rate in the Federal Long Term Care Insurance 
Program for active federal civilian employees was 5 percent, comparable 
to the industry average in the group market, but overall enrollment was 
lower than the expectations established by Partners. Federal enrollees 
were younger than enrollees in individual products and older than 
enrollees in group products. For all products we reviewed, more women 
than men obtained coverage. 

Federal Program Participation Rate Was Comparable to Participation 
Rates of Other Group Products but Lower Than Initially Expected: 

The Federal Long Term Care Insurance Program's employee participation 
rate of 5 percent after the open enrollment period for active federal 
civilian employees was comparable to the industry average in the group 
market.[Footnote 34] Experts suggested that typically 5 to 6 percent of 
a group's potentially eligible population would enroll in a long-term 
care insurance product when initially offered coverage. Participation 
rates tend to increase over time, usually reaching closer to 8 percent, 
depending upon the average age of the eligible population. The federal 
program's employee participation rates were much lower for active 
military members, at 0.2 percent, and for active Postal Service 
employees, at 0.9 percent. Active military members are young and can be 
difficult to reach for marketing purposes, which might explain why they 
were less likely to apply than active federal workers, who tend to be 
older and can be reached directly through their workplace. Active 
Postal Service employees are also difficult to reach because they are 
located throughout the nation rather than grouped in centralized 
locations, and because access to these employees for marketing purposes 
has been restricted during working hours. 

The federal program was the largest employer-sponsored group in the 
nation, with more than 218,000 individuals enrolled for new policies 
sold from March 25, 2002, through March 31, 2005. The next largest 
group program was CalPERS, with more than 175,000 enrollees for 
policies sold from 1995 through 2005. According to Partners, the 
federal program accounted for 15 percent of the enrollees in the entire 
group market and 2 percent of the entire long-term care insurance 
market in 2002.[Footnote 35] 

Even though it was the largest group in the nation, the federal 
program's enrollment was lower than expected. Partners initially 
estimated in 2001 that 286,066 people would enroll during the open 
enrollment period, but actual enrollment was 161,048, or 44 percent 
lower than expected. Partners also estimated that enrollment would 
reach 343,280 by the third year of the program; total enrollment 
eventually rose to 218,890 enrollees for new policies sold from March 
25, 2002, through March 31, 2005, or 36 percent lower than expected. 
Some of the lower-than-expected enrollment can be explained by the low 
participation rates for active military members and Postal Service 
employees. Additionally, according to Partners, the terrorist attacks 
in the fall of 2001 resulted in slower sales of discretionary products, 
such as long-term care insurance, and also resulted in temporarily 
reduced access to federal employees, military members, and Postal 
Service employees for marketing purposes during the open enrollment 
period. A representative of Partners and an expert knowledgeable about 
the federal program indicated that a pool of at least 200,000 enrollees 
is adequate for the federal program to achieve financial stability, 
although no minimum number was ever formally established. 

The federal program focused its marketing efforts on a core group of 
nearly 6 million people out of an estimated eligible population of 
almost 19 million people, and the majority of the enrollees came from 
this core group. The core group consisted of 1.8 million active federal 
civilian employees, 1.4 million active military members, 0.8 million 
active Postal Service employees, and 1.8 million spouses of active 
employees and military members, as shown in table 3. Almost two-thirds 
of the 218,890 people enrolled from March 25, 2002, through March 31, 
2005, came from this core group. According to OPM officials, the 
federal program also reached out to retired federal employees, retired 
military members, and retired Postal Service employees. 

Table 3: Estimated Eligible Population and Actual Enrollees in the 
Federal Long Term Care Insurance Program, by Category: 

Core group: 

Category: Active federal civilian employees; 
Estimated eligible population as of October 15, 2001: Number: 
1,792,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 10; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 90,613; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 41. 

Category: Active military members; 
Estimated eligible population as of October 15, 2001: Number: 
1,353,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 7; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 3,244; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 2. 

Category: Active Postal Service employees; 
Estimated eligible population as of October 15, 2001: Number: 800,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 4; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 6,352; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 3. 

Category: Spouses of active employees and military members[A]; 
Estimated eligible population as of October 15, 2001: Number: 
1,775,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 10; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 35,924; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 16. 

Category: Subtotal for core group; 
Estimated eligible population as of October 15, 2001: Number: 
5,720,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 31; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 136,133; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 62. 

Noncore group: 

Category: Retired employees and military members; 
Estimated eligible population as of October 15, 2001: Number: 
4,263,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 23; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 48,013; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 22. 

Category: Spouses of retired employees and military members and all 
other relatives[B]; 
Estimated eligible population as of October 15, 2001: Number: 
8,084,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 44; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 23,451; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 11. 

Category: Other[C]; 
Estimated eligible population as of October 15, 2001: Number: 500,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 3; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 11,293; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 5. 

Category: Subtotal for noncore group; 
Estimated eligible population as of October 15, 2001: Number: 
12,847,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 69; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 82,757; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 38. 

Category: Total; 
Estimated eligible population as of October 15, 2001: Number: 
18,567,000; 
Estimated eligible population as of October 15, 2001: Percentage of 
total eligible: 100; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Number: 218,890; 
Enrollees for new policies sold from March 25, 2002, through March 31, 
2005: Percentage of total enrollees: 100. 

Source: Partners. 

Note: Individual entries may not sum to totals because of rounding. 

[A] The estimated eligible population for the spouses category for the 
core group includes only eligible spouses of active employees and 
military members. The number of actual enrollees in the spouses 
category for the core group includes both enrolled spouses and enrolled 
relatives of active employees and military members. 

[B] The estimated eligible population for the spouses and relatives 
category for the noncore group includes eligible spouses and eligible 
relatives of retired employees and military members, as well as 
eligible relatives of active employees and military members. The number 
of actual enrollees in the spouses category for the noncore group 
includes enrolled spouses and enrolled relatives of retired employees 
and military members, but not enrolled relatives of active employees 
and military members. 

[C] The estimated eligible population for the "other" category includes 
selected military reservists, but not other eligible groups for which 
the population was unknown. The number of actual enrollees in the 
"other" category includes selected military reservists, and also 
employees and retirees of the Tennessee Valley Authority, District of 
Columbia government employees and retirees first employed before 
October 1, 1987, and employees and retirees of the District of Columbia 
courts. 

[End of table] 

The enrollees during the first 3 years of the federal program 
represented about three-quarters of the applications submitted. The 
federal application approval rate of 74 percent was similar to the 
average approval rate of 75 percent for individual products, but lower 
than the average approval rate of 84 percent for group products, which 
may enroll active workers using guaranteed issue during an open 
enrollment period. The most common reasons for denial of an application 
for the federal program and for the group products were height and 
weight outside of insurable standards, a chronic condition such as 
diabetes or cardiac problems, and cognitive impairment. In addition to 
these reasons, the most common reasons for denial of an application for 
the individual products included cancer, stroke, and musculoskeletal 
problems. 

Federal Program Enrollees Were Younger Than Enrollees in Individual 
Products and Older Than Enrollees in Group Products, and More Women 
Than Men Obtained Coverage for All Products: 

The average age of federal enrollees was 56 years at the time of 
enrollment, compared with an average age of 60 for enrollees in 
individual products and 52 for enrollees in group products, as shown in 
table 4. The average age was 54 for enrollees in CalPERS. In the 
individual market, carriers typically target older adults who are 
planning for retirement or who have already retired. The carriers are 
able to market to them through direct contact from commission-based 
agents. In the group market, carriers typically target active 
employees, who are younger than enrollees typically marketed to in the 
individual market. The carriers market to the active employees through 
the employer via mailings and on-site enrollment meetings, but may not 
be able to obtain contact information for retirees. Unlike much of the 
group market, the federal program does have access to retiree contact 
information and is able to market to retirees through mailings to their 
home addresses. 

More women than men enrolled in the Federal Long Term Care Insurance 
Program, individual products, and group products. (See table 4.) While 
more women than men enrolled in the federal program overall, slightly 
more men than women enrolled among eligible active federal employees, 
active military members, and active Postal Service employees. However, 
women in these groups enrolled in the federal program at a higher rate 
than their representation in the eligible population. Enrollees in the 
federal program from these groups were 51 percent male and 49 percent 
female, while the eligible population of all active federal employees, 
active military members, and active Postal Service employees was 67 
percent male and 33 percent female.[Footnote 36] 

Table 4: Enrollee Characteristics of the Federal Long Term Care 
Insurance Program and of Individual and Group Products, July 1, 2002, 
through March 31, 2005: 

Characteristic: Average age; 
Federal program[A]: 56 years; 
Individual products: 60 years; 
Group products: 52 years. 

Characteristic: Sex: Female; 
Federal program[A]: 54%; 
Individual products: 58%; 
Group products: 56%. 

Characteristic: Sex: Male; 
Federal program[A]: 46%; 
Individual products: 42%; 
Group products: 44%. 

Source: GAO analysis of data provided by Partners, five carriers 
selling individual products, CalPERS, and two carriers selling group 
products. 

[A] The federal program includes 218,890 enrollees from March 25, 2002, 
through March 31, 2005. 

[End of table] 

Early Claims Experience in Federal Long Term Care Insurance Program Was 
Lower Than Expected, but It Is Too Soon to Determine Whether 
Adjustments Are Needed: 

The early claims experience of the Federal Long Term Care Insurance 
Program was below the expectations established by Partners. During its 
first 3 years, the federal program paid 39 percent of what it initially 
expected to pay for claims per enrollee; the number of claims paid per 
enrollee also was lower than initial expectations. It is still too 
early to determine whether this trend will continue or whether 
adjustments to the expected claims experience or premiums are needed. 
About half of the total amount of claim payments was spent on facility 
care. The most common medical conditions prompting claims in the early 
years of the federal program were cancer, stroke, and injuries and 
poisoning. Across the individual and group products we reviewed, the 
most common medical conditions that prompted claims were also cancer, 
stroke and injuries, as well as cognitive problems, musculoskeletal 
disorders, cardiac disease, and arthritis. 

The cumulative claims experience in the first 3 years of the Federal 
Long Term Care Insurance Program was considerably lower than the 
expectations established by Partners. The program paid 39 percent of 
the claims expenditures expected per enrollee for long-term care 
services and paid 33 percent of the expected number of claims per 
enrollee, as shown in table 5.[Footnote 37] While the overall claims 
experience for the first 3 years was lower than expected, the number of 
claims paid as a percentage of expected claims in each consecutive year 
of operation was higher than the previous year. In the first year of 
operation, the amount paid for claims per enrollee was 40 percent of 
expected payments and the number of claims per enrollee was 4 percent 
of expected claims. By the third year of operation, the amount paid for 
claims per enrollee had remained level at 40 percent of expected 
payments, while the number of claims per enrollee had increased to 48 
percent of expected claims. 

Table 5: Actual Claims per Enrollee as a Percentage of Expected Claims 
per Enrollee in the First 3 Years for the Federal Long Term Care 
Insurance Program: 

Characteristic: Amount of claim payments per enrollee as a percentage 
of expected claims per enrollee; 
Year 1: 40%; 
Year 2: 39%; 
Year 3: 40%; 
Cumulative: 39%. 

Characteristic: Number of paid claims per enrollee as a percentage of 
expected claims per enrollee; 
Year 1: 4%; 
Year 2: 37%; 
Year 3: 48%; 
Cumulative: 33%. 

Source: GAO analysis of data provided by Partners. 

[End of table] 

It is still too early to determine whether the early claims experience 
will continue or whether adjustments to the expected claims experience 
or premiums are indicated. While having lower-than-expected claims 
experience is a positive financial indicator, if the claims experience 
is significantly lower than expected over the longer term, then it is 
possible that the premiums are too high. On the other hand, in 
accordance with NAIC premium-setting guidelines, it may be appropriate 
to project the claims experience assuming moderately adverse results to 
protect against the need to raise premiums. As noted earlier, it is 
expected that the number of claims submitted in the first years of a 
long-term care insurance program will be a small percentage of the 
claims submitted over time--most claims are not expected to be 
submitted until 25 years or more after the program begins. 
Additionally, the expected claims experience is sensitive to factors 
such as the level of underwriting, the total number of enrollees, the 
ages of the enrollees, and the types of enrollees--for example, active 
workers, retirees, or relatives. Furthermore, the claims experience is 
only one of many factors--such as interest rates, lapse rates, and 
mortality rates--that affect the long-term financial outlook of the 
program. The financial projections for long-term care insurance are 
sensitive to changes in assumptions about all these factors. Figure 3 
shows the amount of paid claims per 10,000 enrollees and figure 4 shows 
the number of paid claims per 10,000 enrollees during the first 3 years 
of the program compared with the expected claims experience over the 
first 35 years of operation. 

Figure 3: Actual Claim Payments per 10,000 Enrollees in the First 3 
Years Compared with Expected Claim Payments per 10,000 Enrollees over 
35 Years for the Federal Long Term Care Insurance Program: 

[See PDF for image] 

[End of figure] 

Figure 4: Actual Number of Paid Claims per 10,000 Enrollees in the 
First 3 Years Compared with Expected Number of Paid Claims per 10,000 
Enrollees over 35 Years for the Federal Long Term Care Insurance 
Program: 

[See PDF for image] 

[End of figure] 

Facility care accounted for a considerable portion of the federal 
program claim payments in the first 3 years. Of the total $3.6 million 
it paid for claims in the 3-year period, the federal program spent 49 
percent on facility care, 3 percent on home care, 22 percent on 
informal caregivers, and 27 percent on other care. While about half of 
the total claim payment amount was spent on facility care, this type of 
care represented less than a quarter of the total number of claims. 

Generally, most early long-term care insurance claims are submitted for 
conditions such as cognitive problems, cancer, arthritis, stroke, and 
injuries. For the federal program, the most common medical conditions 
that prompted claims during this relatively early period were cancer, 
stroke, and injuries and poisoning. Across the individual and group 
products we reviewed, the most common medical conditions that prompted 
claims were also cancer, stroke and injuries, as well as cognitive 
problems, musculoskeletal disorders, cardiac disease, and arthritis. 

Conclusions: 

The Federal Long Term Care Insurance Program generally compared 
favorably with other products we studied during the first 3 years it 
offered coverage. The federal program offered benefits comparable to 
other products at competitive premium rates for similar benefits. 
Ultimately, the premium any enrollee pays for a long-term care 
insurance product is affected by several different factors, including 
the benefit options purchased, the age of the enrollee at the time of 
purchase, applicable discounts or surcharges, and the results of 
underwriting decisions. In addition, the premium is affected by the 
underlying assumptions about what will happen in the future regarding 
the number and dollar value of claims filed, interest rates, mortality 
rates, and lapse rates. If the actual claims experience, interest 
rates, mortality rates, or lapse rates vary significantly from what was 
expected, then this could mean that the premiums were too low or too 
high, and that premium or benefit adjustments could be warranted. 
Because the federal program had been offering coverage for only about 3 
years at the time of our study, it was too early to draw conclusions 
about the claims experience, especially in relation to the premiums 
charged. Consistent with other long-term care insurance products, the 
federal program expected most enrollees, who averaged 56 years old when 
they enrolled, to submit long-term care insurance claims in their mid-
70s to mid-80s--the time when most claims are submitted. While the 
early claims experience of the federal program was considerably lower 
than initially projected before the program began, an assessment of the 
claims submitted during the next several years and of other factors 
that affect the financial performance of the program will begin to 
provide a clearer picture of the longer-term implications. 

Recommendations for Executive Action: 

We recommend that the Director of OPM take the following two actions. 
First, the Director should analyze the reasons for the lower-than-
expected early claims experience and, as appropriate, use the results 
of this analysis to modify assumptions about the expected claims 
experience. Second, the Director should analyze the projections for the 
amount of premiums to be collected to pay for claims, including an 
analysis of the assumptions made for the projections that are related 
to future claims experience and other factors affecting premiums. OPM 
should report both analyses to Congress prior to the next contract 
negotiations. 

Agency Comments: 

We provided a draft of this report to OPM, Partners, CalPERS, and five 
long-term care insurance carriers. 

In its written comments, OPM generally agreed with our findings and 
provided comments on our recommendations. OPM stated that it intends to 
consider this report when performing due diligence before making a 
decision about a new contract for administration of the Federal Long 
Term Care Insurance Program, in accordance with the Long-Term Care 
Security Act. OPM also stated that the discussion of claims experience 
and premium setting in this report provides all the information 
currently available, precluding the need for a specific report on these 
issues at this time. OPM commented that it would provide updated 
information on claims experience and premium setting in its written 
recommendation to Congress prior to making a decision about the next 
contract. We support OPM's willingness to consider updated information 
on claims experience and premium setting as it works with Congress in 
determining the next contract for the Federal Long Term Care Insurance 
Program, and we agree that a separate report will not be necessary. We 
believe that it is important that actuarial assumptions about future 
claims experience and premium setting reflect the experience of the 
program to date while still anticipating moderately adverse assumptions 
regarding claims experience and other factors in the future. In its 
comments, OPM also indicated that the expectations about the federal 
program's enrollment and claims experience were established by Partners 
prior to the start of the program, rather than established by the 
marketplace. We revised the report to reflect that the expectations 
about enrollment and claims were established by Partners. (OPM's 
comments are reprinted in app. IV.) 

In its written comments, Partners stated that the recommendation in the 
draft report implied that claims experience is the determining factor 
in the pricing of premiums, but that other sections of the report 
explain that other factors in addition to claims experience affect 
pricing, such as interest rates and lapse rates. We clarified the 
recommendation to reflect that other factors in addition to claims 
experience affect the pricing of premiums. 

OPM, Partners, and one carrier provided technical comments, which we 
incorporated as appropriate. 

We are sending copies of this report to the Director of OPM and 
interested congressional committees. We will also provide copies to 
others on request. In addition, this report is available at no charge 
on the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7119 or dickenj@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix V. 

Signed by: 

John E. Dicken: 
Director, Health Care: 

List of Committees: 

The Honorable John Warner: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable George V. Voinovich: 
Chairman: 
The Honorable Daniel K. Akaka: 
Ranking Minority Member: 
Subcommittee on Oversight of Government Management, the Federal 
Workforce, and the District of Columbia: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Duncan L. Hunter: 
Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Jon Christopher Porter: 
Chairman: 
The Honorable Danny K. Davis: 
Ranking Minority Member: 
Subcommittee on the Federal Workforce and Agency Organization: 
Committee on Government Reform: 
House of Representatives: 

[End of section] 

Appendix I: Scope and Methodology: 

To evaluate the competitiveness of the Federal Long Term Care Insurance 
Program, we surveyed Long Term Care Partners, LLC (referred to as 
Partners), the administrator of the federal program; the California 
Public Employees' Retirement System (CalPERS), the second largest long-
term care insurance group in the nation after the federal program; and 
five of the largest long-term care insurance carriers[Footnote 38] to 
obtain long-term care insurance data. The five insurance carriers were 
AEGON USA,[Footnote 39] Bankers Life and Casualty Company, Genworth 
Financial, John Hancock Life Insurance Company, and Metropolitan Life 
Insurance Company. All five carriers sold policies in the individual 
market, and two of the five carriers--John Hancock Life Insurance 
Company and Metropolitan Life Insurance Company--were also among the 
five largest carriers that sold products in the group market. To 
supplement these data, we interviewed officials at the Office of 
Personnel Management (OPM); Partners; the five carriers; CalPERS and 
the organization that administers its program; and five trade 
associations, including one representing actuaries. We also interviewed 
three experts on long-term care insurance. In addition, we reviewed 
studies and literature addressing long-term care insurance. We 
conducted our work from March 2005 through February 2006 in accordance 
with generally accepted government auditing standards. 

Data Request: 

We developed a data-collection instrument to obtain uniform long-term 
care insurance data from Partners, CalPERS, and the five carriers. In 
developing the instrument, we attempted to collect as much data as 
possible while also considering the burden our request would place on 
the respondents. Because of the proprietary nature of much of the data 
we requested from the five carriers, we agreed to report the data so 
that they could not be attributed to any specific carrier unless the 
carrier agreed that we could release the data. To capture the full 
experience of the Federal Long Term Care Insurance Program, we 
requested data from Partners for the period March 25, 2002--the first 
day of the federal early enrollment period--through March 31, 2005. We 
requested data from the carriers and CalPERS for the period July 1, 
2002, through March 31, 2005.[Footnote 40] To document the early 
enrollment and open enrollment periods for the federal program, we also 
requested data from Partners for the period of March 25, 2002, through 
February 7, 2003--the last day the open enrollment period applications 
were processed. From each source, we requested data for the following 
categories: benefits, premiums, administrative costs, enrollment and 
enrollee characteristics, and claims experience. 

Benefits: 

We requested data on the number of enrollees in the individual and 
group markets (including the federal program and CalPERS) who chose 
selected benefit options for new long-term care insurance policies sold 
from July 1, 2002 (March 25, 2002, for the federal program) through 
March 31, 2005. We collected data on coverage types, daily benefit 
amounts, elimination periods, benefit periods, inflation-protection 
options, Health Insurance Portability and Accountability Act of 1996 
(HIPAA) tax-qualification status, and optional benefits offered. The 
respondents determined which policies they considered to be sold during 
the period. While we asked the respondents, where possible, to report 
data for sold policies that became active and for which they collected 
premiums, two respondents reported benefit data for the number of new 
applications submitted rather than for the new policies sold during the 
period. Because the federal program offered long-term care insurance 
coverage in four prepackaged plans, we asked Partners to identify the 
most popular benefit package chosen. (Table 6 in app. II summarizes the 
four prepackaged plans offered in the federal program.) 

Premiums: 

We asked Partners to provide annual premiums for a policy sold on March 
31, 2005, for enrollees in each of the four prepackaged benefit plans 
offered by the federal program, with automatic compound inflation 
protection. Partners provided premium data for enrollees of four 
different ages--40, 50, 60, and 70 years old--for the four benefit 
packages, with automatic compound inflation protection and with a 
future purchase option for inflation protection. Because the federal 
program provided no discounts for spouses, we doubled the premiums that 
single people paid to determine how much a married couple of the same 
age would pay annually for a long-term care insurance policy through 
the federal program. 

To compare premiums with those in the federal program, we asked the 
five carriers selling products in the individual insurance market and 
CalPERS to provide annual premium data for the four federal benefit 
packages or for coverage that most closely resembled each package for 
people for the four ages--40, 50, 60, and 70 years old--for policies 
sold on March 31, 2005. Two of the five carriers selling individual 
products did not sell facilities-only coverage on March 31, 2005, so we 
did not include the premiums for facilities-only coverage in our 
analyses. Therefore, we compared premiums for the three comprehensive 
benefit packages in the federal program. Because carriers selling 
products in the individual market usually place people in rating 
categories according to their health and other criteria, we asked them 
to provide annual premiums for a single person underwritten into the 
standard rating category, which is the category most often used. 
Furthermore, as these carriers usually offer discounts for married 
couples, we asked them to provide annual premiums for a married couple 
of the same age underwritten into the standard rating category. The 
premiums the carriers reported reflected their discounts for couples, 
which in each case was either 30 percent or 40 percent. We also asked 
respondents to identify the coverage types, daily benefit amounts, 
elimination periods, benefit periods, and inflation protection for the 
packages if these benefits differed from those of the federal benefit 
packages. These are the benefit options that most affect premiums. We 
did not ask them to identify other benefits automatically included in 
the coverage or to identify the percentage of the daily benefit amount 
that the package covered for benefits such as formal home care or 
informal home care, if included. Other than for CalPERS--which, like 
the federal program, did not use rating categories or provide discounts 
for spouses--we did not request any premium data for other group 
products because of the variation that exists across the groups insured 
by each carrier. 

To compare the amount of premium spent on claims and the costs 
associated with administering long-term care insurance in the federal 
program with that of other products, we collected information on 
anticipated lifetime loss ratios. The anticipated lifetime loss ratio 
represents the present value of the total expected claim payments 
compared with the present value of the total expected premiums over the 
life of a set of policies. This ratio describes what portion of the 
premium dollar is expected to pay for claims over a long period, with 
the balance going to administrative costs and profits. We collected 
these data for new policies sold from July 1, 2002 (March 25, 2002, for 
the federal program) through March 31, 2005. Two respondents did not 
provide data on loss ratios. 

Enrollment and Enrollee Characteristics: 

We asked for enrollment information from Partners, CalPERS, and the 
five carriers for new policies sold from July 1, 2002 (March 25, 2002, 
for the federal program) through March 31, 2005, including the number 
of new applications submitted and approved. We obtained data on 
selected enrollee characteristics, including age at time of enrollment 
and sex. 

Claims Experience: 

We collected claims-related data from our study participants. For 
example, we obtained the primary medical conditions that prompted the 
claims from Partners, CalPERS, and the five carriers. However, because 
of differences in enrollee characteristics and benefit choices across 
the carriers that would affect the claims experience, we focused 
primarily on the early claims experience of the federal program. We 
collected data on the number of paid claims and the amount of claim 
payments during the 3-year study period from Partners. We also compared 
the anticipated claims experience for the federal program as projected 
prior to initial enrollment with the actual number of claims submitted 
and the actual amount of claim payments during the 3-year period. 

Long-term Care Insurance Interviews: 

To learn about long-term care insurance and to discuss the type of data 
we wanted to obtain through our data request, we interviewed officials 
at OPM and Partners, a CalPERS official and an official from the 
organization that administers the program, and officials at five 
carriers that sold products in the individual market--two of these 
carriers were also among the five largest carriers that sold products 
in the group market. We also conducted follow-up interviews to clarify 
the data provided in response to our data request, to verify 
reliability of the data received, and to obtain additional information. 

We interviewed officials at several groups and associations as well as 
long-term care insurance experts. To obtain broader-based information 
about long-term care insurance, we interviewed the Director of Long-
Term Care at America's Health Insurance Plans and the Senior Director 
of Long-Term Care Insurance at the American Council of Life Insurers. 
We interviewed actuaries and health policy staff from the American 
Academy of Actuaries. To learn more about state regulation of long-term 
care insurance products we contacted officials at the National 
Association of Insurance Commissioners. We interviewed officials at 
AARP to learn about long-term care insurance and the products offered 
through that association. We also interviewed three experts on long-
term care insurance. 

We also reviewed studies on long-term care insurance, including a 
longitudinal study on buyers and nonbuyers of long-term care 
insurance.[Footnote 41] In addition, we reviewed a literature 
review[Footnote 42] and six policy briefs commissioned by the 
Department of Health and Human Services, Office of the Assistant 
Secretary for Planning and Evaluation, all dated August 2004.[Footnote 
43] 

[End of section] 

Appendix II: Federal Long Term Care Insurance Program Benefits: 

The Federal Long Term Care Insurance Program offered enrollees the 
option of choosing a prepackaged benefit plan or of customizing 
benefits. In addition, some applicants for federal benefits who were 
denied regular coverage had another option available that offered 
nursing-home-only coverage, called the Alternative Insurance Plan, 
while all applicants denied coverage could purchase a Service Package, 
which did not provide insurance but offered services such as access to 
a person who coordinated care and to a discounted network of long-term 
care providers. Nearly two-thirds of all federal enrollees during the 
period March 25, 2002, through March 31, 2005, chose a prepackaged 
benefit plan, with the remaining enrollees during that period 
customizing benefits or enrolling in the Alternative Insurance Plan. 

Prepackaged Benefit Plans in the Federal Long Term Care Insurance 
Program: 

Enrollees in the Federal Long Term Care Insurance Program could choose 
from four prepackaged benefit plans. In each of the plans, several 
benefit options--daily benefit amount; coverage period; elimination 
period; and maximum lifetime benefit, which is a combination of the 
daily benefit amount and benefit period--had been preselected into the 
packages along with all covered services. After selecting one of the 
four packages, the enrollee only had to choose the type of inflation 
protection--either automatic compound[Footnote 44] or the future 
purchase option.[Footnote 45] Table 6 shows the four prepackaged plans 
offered in the Federal Long Term Care Insurance Program. 

Table 6: Prepackaged Plans in the Federal Long Term Care Insurance 
Program: 

Benefit options: Daily benefit amount (DBA)[B]; 
Facilities 100: $100; 
Comprehensive[A] 100: $100; 
Comprehensive[A] 150: $150; 
Comprehensive[A] 150+: $150. 

Benefit options: Benefit period; 
Facilities 100: 3 years; 
Comprehensive[A] 100: 3 years; 
Comprehensive[A] 150: 5 years; 
Comprehensive[A] 150+: Unlimited. 

Benefit options: Elimination period; 
Facilities 100: 90 days; 
Comprehensive[A] 100: 90 days; 
Comprehensive[A] 150: 90 days; 
Comprehensive[A] 150+: 90 days. 

Benefit options: Maximum lifetime benefit[B]; 
Facilities 100: $109,500; 
Comprehensive[A] 100: $109,500; 
Comprehensive[A] 150: $273,750; 
Comprehensive[A] 150+: Unlimited. 

Benefit options: Inflation protection; 
Facilities 100: Choice of automatic compound or future purchase option; 
Comprehensive[A] 100: Choice of automatic compound or future purchase 
option; 
Comprehensive[A] 150: Choice of automatic compound or future purchase 
option; 
Comprehensive[A] 150+: Choice of automatic compound or future purchase 
option. 

Covered services: Nursing home, assisted living facility, or hospice 
facility; 
Facilities 100: 100% of DBA; 
Comprehensive[A] 100: 100% of DBA; 
Comprehensive[A] 150: 100% of DBA; 
Comprehensive[A] 150+: 100% of DBA. 

Covered services: Respite care in a facility[C]; 
Facilities 100: 100% of DBA; 
Comprehensive[A] 100: 100% of DBA; 
Comprehensive[A] 150: 100% of DBA; 
Comprehensive[A] 150+: 100% of DBA. 

Covered services: Caregiver training[D]; 
Facilities 100: 100% of DBA; 
Comprehensive[A] 100: 100% of DBA; 
Comprehensive[A] 150: 100% of DBA; 
Comprehensive[A] 150+: 100% of DBA. 

Covered services: Bed reservations[E]; 
Facilities 100: 100% of DBA; 
Comprehensive[A] 100: 100% of DBA; 
Comprehensive[A] 150: 100% of DBA; 
Comprehensive[A] 150+: 100% of DBA. 

Covered services: Formal caregiver services at home; 
Facilities 100: None; 
Comprehensive[A] 100: 75% of DBA; 
Comprehensive[A] 150: 75% of DBA; 
Comprehensive[A] 150+: 75% of DBA. 

Covered services: Informal caregiver services at home[F]; 
Facilities 100: None; 
Comprehensive[A] 100: 75% of DBA; 
Comprehensive[A] 150: 75% of DBA; 
Comprehensive[A] 150+: 75% of DBA. 

Covered services: Hospice care at home; 
Facilities 100: None; 
Comprehensive[A] 100: 100% of DBA; 
Comprehensive[A] 150: 100% of DBA; 
Comprehensive[A] 150+: 100% of DBA. 

Covered services: Adult day care center; 
Facilities 100: None; 
Comprehensive[A] 100: 75% of DBA; 
Comprehensive[A] 150: 75% of DBA; 
Comprehensive[A] 150+: 75% of DBA. 

Sources: OPM and Partners. 

[A] A comprehensive plan covers everything a facilities-only plan 
covers plus formal or informal care at home, care in adult day care 
centers, hospice care at home, and respite services at home. 

[B] Does not reflect inflation-protection increases. Also, weekly 
benefit amounts are available under comprehensive options. The weekly 
benefit amount is equal to 7 times the DBA. 

[C] Benefits limited to 30 times the DBA per calendar year. 
Comprehensive options provide respite care at up to 75 percent of the 
DBA at home or at an adult day care center in addition to services in a 
facility. 

[D] Benefits limited to 7 times the DBA in a lifetime. 

[E] This benefit pays a nursing home, assisted living facility, or 
hospice facility to hold a bed while an enrollee is temporarily absent 
so that the enrollee may return to the facility. Benefits are limited 
to 30 days per calendar year. 

[F] Benefits for informal caregiver services are limited to those 
provided by people who did not normally live in enrollee's home at the 
time enrollee became eligible for benefits. Benefits for care provided 
by family members are limited to 365 days in a lifetime. 

[End of table] 

The federal program included care-coordination benefits and coverage 
for international benefits and had no war exclusion. Federal program 
care coordinators provide, among other services, general information 
about long-term care services; assess and approve need for care; 
develop a care plan; and monitor and reassess services. Using these 
services did not reduce an enrollee's maximum lifetime benefits. Care-
coordination services were also available to qualified 
relatives,[Footnote 46] who did not need to be enrolled in the program, 
although some services could be provided at an additional charge. 
Coverage for benefits received outside the United States was available 
at 80 percent of the maximum amounts that would otherwise be payable, 
with certain restrictions. Although the federal program did not have a 
war exclusion, it included a catastrophic-coverage limitation; that is, 
a catastrophic event could limit the benefit period. 

The federal program did not include several benefits and services that 
could be available in other products. For example, the federal program 
did not offer limited pay policies, in which the long-term care 
insurance policy could be paid up over a limited period of time; 
restoration of benefit options, in which any of the policy's maximum 
benefits that has been used could be replaced if the enrollee did not 
receive benefits for a specified period of time; or any discounts for 
both spouses of a married couple purchasing coverage, all of which were 
options available in individual products. 

Customized Benefits in the Federal Program: 

Federal program enrollees had several options for customizing benefits 
instead of choosing a prepackaged benefit plan. Within certain 
parameters, federal enrollees could design their own plans by mixing 
and matching benefit options. In total, the federal program provided 
for 528 design variations. In addition to the benefit options selected, 
covered services listed in table 6 were automatically included. Table 7 
shows the type and number of benefit options available to enrollees. 

Table 7: Benefit Options in the Federal Long Term Care Insurance 
Program: 

Benefit description: Coverage type--facilities-only or 
comprehensive[A]; 
Number of options: 2. 

Benefit description: Daily benefit amounts[B] --from $50 to $300, in 
$25 increments; 
Number of options: 11. 

Benefit description: Elimination periods--30 days or 90 days; 
Number of options: 2. 

Benefit description: Benefit periods--3 years, 5 years, or unlimited; 
Number of options: 3. 

Benefit description: Inflation protection--automatic compound inflation 
or future purchase option; 
Number of options: 2. 

Source: OPM and Partners. 

[A] A comprehensive plan covers everything a facilities-only plan 
covers plus formal or informal care at home, hospice care at home, 
respite services at home, and care in adult day care centers. 

[B] The federal program also offers weekly benefit amounts with a 
comprehensive plan for an additional cost. 

[End of table] 

Other Benefits in the Federal Program: 

Applicants denied regular coverage in the Federal Long Term Care 
Insurance Program had other benefit options. Some federal employees, 
members of the uniformed services, and their spouses who could apply 
for the federal program using an abbreviated application, but who were 
denied regular coverage, were offered coverage in the Alternative 
Insurance Plan. This plan covered nursing homes only, had a 180-day 
elimination period, provided coverage for 2 years, and started with a 
weekly benefit amount of $200. In addition, all applicants for the 
federal program who were denied coverage could purchase a Service 
Package for an annual fee. This noninsurance option provided access to 
care-coordination services and discounts. 

Enrollment in Federal Program Benefits: 

Nearly two-thirds of the 218,890 people who enrolled in the federal 
program from March 25, 2002, through March 31, 2005, chose one of the 
four prepackaged benefits. As shown in table 8, 35 percent of the 
enrollees customized their benefits within the ranges offered by the 
federal program, and less than 1 percent enrolled in the Alternative 
Insurance Plan. 

Table 8: Federal Long Term Care Insurance Program Enrollment in 
Prepackaged Benefit Plans, Customized Benefits, and Alternative 
Insurance Plan from March 25, 2002, through March 31, 2005: 

Prepackaged benefit plans; 
Number: 141,195; 
Percentage: 65. 

With automatic compound inflation protection; 
Number: 93,870; 
Percentage: 43. 

With future purchase option for inflation protection; 
Number: 47,325; 
Percentage: 22. 

Customized benefits; 
Number: 77,164; 
Percentage: 35. 

With automatic compound inflation protection; 
Number: 55,015; 
Percentage: 25. 

With future purchase option for inflation protection; 
Number: 22,149; 
Percentage: 10. 

Alternative Insurance Plan[A]; 
Number: 531; 
Percentage: <1. 

Total; 
Number: 218,890; 
Percentage: 100. 

Source: OPM and Partners. 

Note: Individual entries may not add to 100 percent because of 
rounding. 

[A] For the Alternative Insurance Plan, if coverage remains in effect 
for 24 months, 48 months, or 72 months, and enrollee does not become 
eligible for benefits, weekly benefit amount increases to $300, $400, 
or $500, respectively, without an increase in the premium. 

[End of table] 

Overall, 141,195 people enrolled in one of the four prepackaged benefit 
plans. Of the enrollees who chose a prepackaged benefit plan, 12 
percent enrolled in the facilities-only package. The remainder, 88 
percent, enrolled in one of the three comprehensive packages. Most of 
the people who enrolled in a comprehensive package enrolled in the 
Comprehensive 100 package. About two-thirds of all the enrollees 
choosing a prepackaged benefit plan also chose automatic compound 
inflation protection. Table 9 shows federal program enrollment in the 
four prepackaged benefit plans. 

Table 9: Federal Long Term Care Insurance Program Enrollment in 
Prepackaged Benefit Plans from March 25, 2002, through March 31, 2005: 

Facilities 100; 
Number who chose automatic compound inflation: 10,324; 
Number who chose future purchase option: 6,749; 
Total: 17,073; 
Percentage: 12. 

Comprehensive 100; 
Number who chose automatic compound inflation: 41,031; 
Number who chose future purchase option: 18,110; 
Total: 59,141; 
Percentage: 42. 

Comprehensive 150; 
Number who chose automatic compound inflation: 25,575; 
Number who chose future purchase option: 12,962; 
Total: 38,537; 
Percentage: 27. 

Comprehensive 150+; 
Number who chose automatic compound inflation: 16,940; 
Number who chose future purchase option: 9,504; 
Total: 26,444; 
Percentage: 19. 

Total; 
Number who chose automatic compound inflation: 93,870; 
Number who chose future purchase option: 47,325; 
Total: 141,195; 
Percentage: 100. 

Source: OPM and Partners. 

[End of table] 

[End of section] 

Appendix III: Annual Premiums for Three Benefit Packages Offered in the 
Federal Program and at Five Carriers: 

Annual premiums for three comprehensive benefit packages offered in the 
Federal Long Term Care Insurance Program compared favorably with 
premiums at five carriers selling similar products in the individual 
insurance market. Tables 10 through 12 show that federal premiums for 
each of the three benefit packages were always lower than the average 
premium at five carriers for single people and for married couples who 
were both the same age. When considering the range of premiums 
available at the five carriers selling similar individual products, 
federal premiums for a single person were always lower than the 
premiums for individual products, while married couples who were both 
the same age could find lower premiums in the federal program in almost 
every case. 

Table 10: Annual Premiums for Single People and Married Couples Who 
Were Both the Same Age for the Federal Long Term Care Insurance Program 
and for Five Carriers in the Individual Insurance Market for Package 1 
Sold on March 31, 2005: 

Enrollee: Single person: 40 years old; 
Federal program: $520.80; 
Average for five carriers[A]: $1,045.70; 
Percentage difference[B]: 50; 
Range for five carriers: $913.68 to $1,349.01. 

Enrollee: Single person: 50 years old; 
Federal program: $746.40; 
Average for five carriers[A]: $1,253.02; 
Percentage difference[B]: 40; 
Range for five carriers: $1,063.14 to $1,580.06. 

Enrollee: Single person: 60 years old; 
Federal program: $1,118.40; 
Average for five carriers[A]: $1,702.32; 
Percentage difference[B]: 34; 
Range for five carriers: $1,455.12 to $2,213.00. 

Enrollee: Single person: 70 years old; 
Federal program: $1,852.80; 
Average for five carriers[A]: $3,143.29; 
Percentage difference[B]: 41; 
Range for five carriers: $2,723.27 to $3,880.77. 

Enrollee: Married couples who were both the same age: 40 years old; 
Federal program: $1,041.60; 
Average for five carriers[A]: $1,382.38; 
Percentage difference[B]: 25; 
Range for five carriers: $1,152.00 to $1,888.61. 

Enrollee: Married couples who were both the same age: 50 years old; 
Federal program: $1,492.80; 
Average for five carriers[A]: $1,653.03; 
Percentage difference[B]: 10; 
Range for five carriers: $1,428.00 to $2,212.08. 

Enrollee: Married couples who were both the same age: 60 years old; 
Federal program: $2,236.80; 
Average for five carriers[A]: $2,248.25; 
Percentage difference[B]: 1; 
Range for five carriers: $1,920.00 to $3,098.20. 

Enrollee: Married couples who were both the same age: 70 years old; 
Federal program: $3,705.60; 
Average for five carriers[A]: $4,155.52; 
Percentage difference[B]: 11; 
Range for five carriers: $3,518.00 to $5,433.07. 

Source: GAO analysis of data provided by Partners and five carriers 
selling individual products. 

Notes: Premiums shown are for the federal program's Comprehensive 100 
benefit package (Package 1), the most popular federal benefit package 
purchased through March 31, 2005. Package 1 included a $100 daily 
benefit amount, 3-year benefit period, 90-day elimination period, and 
the automatic compound inflation-protection option. 

For the five carriers we reviewed, premiums were for a single person 
and a married couple who were both the same age placed in the standard 
rating category. The federal program did not use rating categories. 
Premiums for married couples who were both the same age at the five 
carriers reflected either a 30-percent or a 40-percent discount. The 
federal program did not provide discounts for spouses. Therefore, we 
doubled the premiums charged for single people. We assumed there was no 
discount for good health. 

All benefits chosen by an enrollee affect the pricing of the package to 
some degree. Carriers provided premiums for the major options most 
similar to the federal program that had the largest effect on the 
premiums--daily benefit amounts, benefit periods, elimination periods, 
and inflation protection. 

[A] One carrier reported premiums for a 100-day elimination period 
rather than for a 90-day period. 

[B] The percentage difference shows how much lower the annual federal 
program premium is than the average annual premium at the five carriers 
selling individual products. 

[End of table] 

Table 11: Annual Premiums for Single People and Married Couples Who 
Were Both the Same Age for the Federal Long Term Care Insurance Program 
and for Five Carriers in the Individual Insurance Market for Package 2 
Sold on March 31, 2005: 

Enrollee: Single person: 40 years old; 
Federal program: $950.40; 
Average for five carriers[A]: $2,066.88; 
Percentage difference[B]: 54; 
Range for five carriers: $1,855.00 to $2,557.12. 

Enrollee: Single person: 50 years old; 
Federal program: $1,364.40; 
Average for five carriers[A]: $2,446.50; 
Percentage difference[B]: 44; 
Range for five carriers: $2,144.61 to $3,000.74. 

Enrollee: Single person: 60 years old; 
Federal program: $2,044.80; 
Average for five carriers[A]: $3,332.64; 
Percentage difference[B]: 39; 
Range for five carriers: $2,842.56 to $4,213.44. 

Enrollee: Single person: 70 years old; 
Federal program: $3,380.40; 
Average for five carriers[A]: $6,178.10; 
Percentage difference[B]: 45; 
Range for five carriers: $5,352.64 to $7,428.87. 

Enrollee: Married couples who were both the same age: 40 years old; 
Federal program: $1,900.80; 
Average for five carriers[A]: $2,735.83; 
Percentage difference[B]: 31; 
Range for five carriers: $2,225.00 to $3,579.97. 

Enrollee: Married couples who were both the same age: 50 years old; 
Federal program: $2,728.80; 
Average for five carriers[A]: $3,231.50; 
Percentage difference[B]: 16; 
Range for five carriers: $2,700.00 to $4,201.03. 

Enrollee: Married couples who were both the same age: 60 years old; 
Federal program: $4,089.60; 
Average for five carriers[A]: $4,404.34; 
Percentage difference[B]: 7; 
Range for five carriers: $3,726.00 to $5,898.81. 

Enrollee: Married couples who were both the same age: 70 years old; 
Federal program: $6,760.80; 
Average for five carriers[A]: $8,149.30; 
Percentage difference[B]: 17; 
Range for five carriers: $6,801.00 to $10,400.41. 

Source: GAO analysis of data provided by Partners and five carriers 
selling individual products. 

Notes: Premiums shown are for the federal program's Comprehensive 150 
benefit package (Package 2). Package 2 included a $150 daily benefit 
amount, 5-year benefit period, 90-day elimination period, and the 
automatic compound inflation-protection option. 

For the five carriers we reviewed, premiums were for a single person 
and a married couple who were both the same age placed in the standard 
rating category. The federal program did not use rating categories. 
Premiums for married couples who were both the same age at the five 
carriers reflected either a 30-percent or a 40-percent discount. The 
federal program did not provide discounts for spouses. Therefore, we 
doubled the premiums charged for single people. We assumed there was no 
discount for good health. 

All benefits chosen by an enrollee affect the pricing of the package to 
some degree. Carriers provided premiums for the major options most 
similar to the federal program that had the largest effect on the 
premiums--daily benefit amounts, benefit periods, elimination periods, 
and inflation protection. 

[A] One carrier reported premiums for a 100-day elimination period 
rather than for a 90-day period. 

[B] The percentage difference shows how much lower the annual federal 
program premium is than the average annual premium at the five carriers 
selling individual products. 

[End of table] 

Table 12: Annual Premiums for Single People and Married Couples Who 
Were Both the Same Age for the Federal Long Term Care Insurance Program 
and for Five Carriers in the Individual Insurance Market for Package 3 
Sold on March 31, 2005: 

Enrollee: Single person: 40 years old; 
Federal program: $1,310.40; 
Average for five carriers[A]: $3,066.24; 
Percentage difference[B]: 57; 
Range for five carriers: $2,755.65 to $3,585.57. 

Enrollee: Single person: 50 years old; 
Federal program: $1,875.60; 
Average for five carriers[A]: $3,647.26; 
Percentage difference[B]: 49; 
Range for five carriers: $3,165.00 to $4,186.00. 

Enrollee: Single person: 60 years old; 
Federal program: $2,779.20; 
Average for five carriers[A]: $5,004.11; 
Percentage difference[B]: 44; 
Range for five carriers: $4,455.00 to $5,788.75. 

Enrollee: Single person: 70 years old; 
Federal program: $4,550.40; 
Average for five carriers[A]: $9,093.04; 
Percentage difference[B]: 50; 
Range for five carriers: $7,740.90 to $10,051.12. 

Enrollee: Married couples who were both the same age: 40 years old; 
Federal program: $2,620.80; 
Average for five carriers[A]: $4,051.62; 
Percentage difference[B]: 35; 
Range for five carriers: $3,546.00 to $5,019.80. 

Enrollee: Married couples who were both the same age: 50 years old; 
Federal program: $3,751.20; 
Average for five carriers[A]: $4,812.09; 
Percentage difference[B]: 22; 
Range for five carriers: $3,798.00 to $5,846.35. 

Enrollee: Married couples who were both the same age: 60 years old; 
Federal program: $5,558.40; 
Average for five carriers[A]: $6,606.20; 
Percentage difference[B]: 16; 
Range for five carriers: $5,346.00 to $8,104.25. 

Enrollee: Married couples who were both the same age: 70 years old; 
Federal program: $9,100.80; 
Average for five carriers[A]: $11,971.86; 
Percentage difference[B]: 24; 
Range for five carriers: $10,837.26 to $14,071.56. 

Source: GAO analysis of data provided by Partners and five carriers 
selling individual products. 

Notes: Premiums shown are for the federal program's Comprehensive 150+ 
benefit package (Package 3). Package 3 included a $150 daily benefit 
amount, unlimited benefit period, 90-day elimination period, and the 
automatic compound inflation-protection option. 

For the five carriers we reviewed, premiums were for a single person 
and a married couple who were both the same age placed in the standard 
rating category. The federal program did not use rating categories. 
Premiums for married couples who were both the same age at the five 
carriers reflected either a 30-percent or a 40-percent discount. The 
federal program did not provide discounts for spouses. Therefore, we 
doubled the premiums charged for single people. We assumed there was no 
discount for good health. 

All benefits chosen by an enrollee affect the pricing of the package to 
some degree. Carriers provided premiums for the major options most 
similar to the federal program that had the largest effect on the 
premiums--daily benefit amounts, benefit periods, elimination periods, 
and inflation protection. 

[A] One carrier reported premiums for a 100-day elimination period 
rather than for a 90-day period. 

[B] The percentage difference shows how much lower the annual federal 
program premium is than the average annual premium at the five carriers 
selling individual products. 

[End of table] 

[End of section] 

Appendix IV: Comments from the Office of Personnel Management: 

UNITED STATES OFFICE OF PERSONNEL MANAGEMENT: 
OFFICE OF THE DIRECTOR: 
WASHINGTON, DC 20415-1000: 

MAR 14 2006: 

Mr. John E. Dicken: 
Director, Health Care: 
United States Government Accountability Office: 
Washington, D.C. 20548: 

Dear Mr. Dicken: 

Thank you for requesting our comments on your proposed report entitled 
LONG-TERM CARE INSURANCE: Federal Program Compared Favorably to Other 
Products, and Analysis of Claims Trend Could Inform Future Decisions 
(GAO-06-401). 

Overall, we are pleased with the report. It is gratifying to see in 
print what we've known since we designed the program -the Federal Long 
Term Care Insurance Program compares favorably with other long term 
care insurance plans in private industry. 

The report makes three recommendations. The first recommends that we 
analyze the low initial claims experience and use the results to modify 
expectations, and the second recommends that we analyze the amount of 
premium to be collected to pay for claims and the assumptions that went 
into the pricing. Finally, the report recommends that OPM send a report 
to Congress on these issues before the next contract negotiations. 

I appreciate your suggestions to look further into the fact that the 
Program has received a low number of claims. It is important to note 
that FLTCIP was designed to have limited claims in the initial years. 
Enrollees were subject to an underwriting process, the purpose of which 
is to limit selection risk to the program. The effect of underwriting 
will diminish over time. A low number of initial claims is a good 
trend. The conservative premiums were analyzed very carefully before 
awarding the current contract. We need to be especially prudent not to 
come to any quick conclusions. As stated in your report, many factors 
come into play when setting premiums. Claims experience is but one of 
them. It would be imprudent to decrease premiums at this time. As you 
know, other plans have done so and come to regret it later when they 
had to increase premiums dramatically as market conditions changed. 
Further, the Program's annualized premium per enrollee is significantly 
higher than initially projected due to the high number of enrollees 
choosing the automatic compound inflation option. 

The Long-Tern Care Security Act (P.L. 106-265) already requires OPM to 
consider both this GAO report and the subsequent one to be issued in 
two years before we make any decisions about renewing the current 
contract which expires in 2008 or deciding to recompete. Certainly we 
will consider these recommendations when we perform our due diligence 
before making our contracting decision. The discussion of claims 
experience and premium setting that are part of GAO's report and our 
comments provide all of the information that is available at this time 
and preclude the need for a specific report on these issues. OPM will 
include updated information on claims experience and premium setting in 
its written recommendation to Congress already required by section 
9003(d)(3) of the Act. 

In all of the places where reference is made to "expectations" or 
"projections" in terms of enrollment, claims, etc., we believe it 
should be made clear that these were not market expectations. Long Term 
Care Partners provided low, medium, and high enrollment projections as 
part of their response to our request for proposals. Our review of 
their projections demonstrated that they had the capacity to handle the 
business under a variety of scenarios. We did not set enrollment or 
claims goals, since this was the first voluntary benefits program 
offered by the Government and we had no prior experience in offering an 
employee-pay-all benefit. Our focus was not so much on reaching an 
enrollment target, but ensuring that excellent customer service would 
be provided under any enrollment scenario. 

We also have some technical comments for the body of the report, which 
we will send by email. 

Thank you for the valuable feedback you have provided on the Federal 
Long Term Care Insurance Program. We look forward to receiving the 
final report. 

Sincerely, 

Signed by: 

Linda M. Springer: 
Director: 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

John E. Dicken, (202) 512-7119 or dickenj@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Christine Brudevold, Assistant 
Director; Laura Sutton Elsberg; Elizabeth T. Morrison; Michelle Murray; 
and Joseph Petko made key contributions to this report. 

FOOTNOTES 

[1] Pub. L. No. 106-265, 114 Stat. 762, 764 (2000). 

[2] Senate Committee on Governmental Affairs, S. Rep. No. 106-344, at 
18 (2000). 

[3] House Committee on Government Reform, H.R. Rep. No. 106-610, at 8 
(2000). 

[4] Pub. L. No. 106-265, § 9006, 114 Stat. 768. The act also requires 
us to conduct a second, subsequent study of the Federal Long Term Care 
Insurance Program. 

[5] CalPERS manages pension, health, and other benefits for more than 
1.4 million California public employees, retirees, and their families 
and for more than 2,500 public employers. CalPERS began offering a long-
term care insurance program in 1995. After the federal program, CalPERS 
is the next largest group offering long-term care insurance. In 
contrast to the federal program and most group products, the CalPERS 
group product is self-funded rather than purchased from an insurer. 

[6] We selected the five carriers on the basis of the total number of 
policies and annualized premiums in effect in the individual market as 
of December 31, 2004. 

[7] AEGON USA left the long-term care insurance market on March 31, 
2005. 

[8] The open enrollment period closed on December 31, 2002, but 
applications submitted and received by February 7, 2003, were processed 
as part of the open enrollment period. 

[9] We asked the carriers to provide data for the period beginning July 
1, 2002, which is the beginning of a financial quarter and the 
beginning of the federal open enrollment period, rather than March 25, 
2002, the beginning of the federal early enrollment period. Because few 
federal program enrollees--about 4 percent of the program's total 
enrollment as of March 31, 2005--had coverage that became effective 
during the early enrollment period, we reduced the reporting burden for 
the carriers by requesting data for the period beginning July 1, 2002. 

[10] People may need help in performing ADLs such as eating, bathing, 
dressing, using the toilet, getting in and out of bed, and getting 
around the house. Also, people may need help in performing instrumental 
ADLs such as preparing meals, shopping for groceries, and getting 
around outside. 

[11] Throughout this report we use the term "enrollees" to refer to 
people who enroll in the Federal Long Term Care Insurance Program, who 
purchase individual products, or who enroll in group products. 

[12] Underwriting is the process of reviewing medical and health-
related questions furnished in an application to determine if the 
applicant presents an acceptable level of risk and is insurable. Some 
insurers require medical record reviews and interviews with nurses as 
well. 

[13] For the purposes of this report, a claim refers to the series of 
payments made to reimburse the provider or the policyholder for the 
costs of an episode of care. 

[14] State insurance regulators established NAIC to help promote 
effective insurance regulation, to encourage uniformity in approaches 
to regulation, and to help coordinate states' activities. Among other 
activities, NAIC develops model laws and regulations to assist states 
in formulating their policies to regulate insurance. 

[15] Pub. L. No. 104-191, §§ 321-327, 110 Stat. 1936, 2054-2067. 

[16] Long-term care insurance premiums for HIPAA tax-qualified plans 
can be itemized as deductions from income along with other medical 
expenses, which is similar to how premiums for accident and health 
insurance are handled. 

[17] HIPAA requirements will be met if an insurance contract complies 
with state law in a state that has adopted the NAIC model regulations 
or a more stringent version of the model. 

[18] Throughout this report, we include the District of Columbia in our 
references to the states. 

[19] America's Health Insurance Plans, Research Findings, Long-Term 
Care Insurance in 2002 (Washington, D.C.: June 2004). 

[20] U.S. Department of Labor, Bureau of Labor Statistics, National 
Compensation Survey: Employee Benefits in Private Industry in the 
United States, March 2005 (Washington, D.C.: August 2005). 

[21] During the early enrollment period, enrollees had more limited 
choices in some of the benefit options such as the benefit period and 
type of coverage; for example, they could select only comprehensive 
coverage. 

[22] Qualified relatives include current spouses of employees and 
retirees; adult children at least 18 years old--including natural, 
adopted, and stepchildren, but not foster children--of living employees 
and retirees; and parents, parents-in-law, and stepparents of living 
employees, but not of retirees. Selected military reservists, employees 
and retirees of the Tennessee Valley Authority, District of Columbia 
government employees and retirees first employed before October 1, 
1987, and employees and retirees of the District of Columbia Courts are 
also eligible to apply. 

[23] Newly married spouses of eligible employees and certain federal or 
Postal Service employees returning from a nonpay status and their 
spouses can also use an abbreviated application. 

[24] With automatic compound inflation protection, benefit amounts 
increase by a stated percentage of the previous year's amount with 
generally no change in premiums. The future purchase option offers the 
ability to increase benefits at predetermined time intervals for an 
additional cost. 

[25] The federal program offers four prepackaged plan designs. One 
package is a facilities-only design, while the remaining three packages 
provide comprehensive coverage, including long-term care services 
provided in the home. We report data on premiums for the three 
comprehensive packages because two carriers selling individual products 
did not offer facilities-only benefits on March 31, 2005. 

[26] Partners officials told us that group products typically offer 
fewer options than individual products because the group products are 
sold without the assistance of an agent. 

[27] All four federal prepackaged plans included 90-day elimination 
periods. Federal enrollees who designed their own customized benefits 
could choose either a 30-or 90-day elimination period. Elimination 
periods can be based either on the number of days from the beginning of 
the episode of illness--calendar days--or on the number of days from 
when services are first received--service days. The elimination periods 
for the federal program are based on service days. 

[28] We included premiums for the three comprehensive benefit packages 
available in the federal program. Premiums included compound inflation 
protection. 

[29] The premiums for married couples include spousal discounts of 30 
or 40 percent. 

[30] We did not request premium information for comparable benefit 
packages for group products other than CalPERS, because of the 
variation that exists across the groups insured by each carrier. In 
contrast to the federal program and most group products, the CalPERS 
group product is self-funded rather than purchased from an insurer, 
which CalPERS claims may lower its costs to provide benefits compared 
with other insurers. 

[31] The anticipated lifetime loss ratio describes what portion of the 
premium is expected to pay for claims over the life of a set of 
policies. This ratio is calculated as the present value of the total 
expected claim payments compared with the present value of the total 
expected premiums over the life of a set of policies. 

[32] Four of the five respondents in the individual market provided 
loss ratio data; three of these respondents provided additional detail 
about administrative costs. Two of the three respondents in the group 
market provided loss ratio data. 

[33] The federal program followed NAIC's 2000 revised guidelines, which 
recommended that carriers price their products high enough initially to 
prevent the need for future rate increases rather than target a minimum 
percentage of total premiums--for example, 60 percent--to be spent on 
claims. 

[34] In general, the participation rate is calculated as the number of 
enrollees divided by the eligible population at a point in time. The 
most common formula, called the employee participation rate, is the 
number of enrolled employees divided by the number of active employees. 
The number of people who are eligible to enroll in individual products 
is unknown; therefore, an accurate participation rate for the 
individual market cannot be calculated. 

[35] For the period of March 25, 2002, through March 31, 2005, 74 
percent of the federal program's enrollees had coverage that became 
effective during the early and open enrollment periods. 

[36] Eligible population data were collected as of September 30, 2002, 
the most recent date for which all data were available. 

[37] Partners developed estimates for the claims experience based on 
their estimates for enrollment before the federal program began. We 
used a ratio that compares actual with expected paid claims per 
enrollee to account for lower-than-expected enrollment, but data were 
not available for the age or type of enrollees. 

[38] We selected the five carriers on the basis of the total number of 
policies and annualized premiums in effect in the individual market as 
of December 31, 2004. 

[39] AEGON USA left the long-term care insurance market on March 31, 
2005. 

[40] We asked the carriers and CalPERS to provide data for the period 
beginning July 1, 2002, which is the beginning of the federal open 
enrollment period, rather than March 25, 2002, the beginning of the 
federal early enrollment period. Because few federal program enrollees-
-about 4 percent of the program's total enrollment as of March 31, 
2005--had coverage that became effective during the early enrollment 
period, we reduced the reporting burden for the carriers by requesting 
data for the period beginning July 1, 2002. 

[41] For example, we reviewed America's Health Insurance Plans, 
Research Findings, Long-Term Care Insurance in 2002 (Washington, D.C.: 
June 2004); Health Insurance Association of America by LifePlans, Inc., 
Who Buys Long-Term Care Insurance in 2000? A Decade of Study of Buyers 
and Nonbuyers (Washington, D.C.: October 2000); and Society of 
Actuaries, Long Term Care Experience Committee Intercompany Study 1984 
-2001 (Schaumburg, Ill.: November 2004). 

[42] Department of Health and Human Services, Office of the Assistant 
Secretary for Planning and Evaluation, What We Know About Buyers and 
Non-Buyers of Private Long-Term Care Insurance: A Review of Studies 
(Washington, D.C.: August 2004). 

[43] The six policy briefs were (1) A Demographic and Attitudinal 
Profile of Buyers of the Federal Long-Term Care Insurance Program, (2) 
A Demographic and Attitudinal Profile of Non-Buyers of the Federal Long-
Term Care Insurance Program, (3) A Demographic and Attitudinal Profile 
of Non-Responders to the Federal Long-Term Care Insurance Program, (4) 
A Comparison of Demographic and Attitudinal Characteristics Among 
Active and Retired Buyers, Non-Buyers and Non-Responders to the Federal 
Long-Term Care Insurance Program, (5) Marketing Activities: A 
Comparative Analysis of Engagement and Participation Among Buyers, Non-
Buyers and Non-Responders of the Federal Long-Term Care Insurance 
Program, and (6) Multivariate Analysis of Buyers and Non-Buyers of the 
Federal Long-Term Care Insurance Program. Each policy brief was 
prepared under contract between the Department of Health and Human 
Services, Office of the Assistant Secretary for Planning and 
Evaluation, Office of Disability, Aging and Long-Term Care Policy and 
LifePlans, Inc. (Washington, D.C.: August 2004). 

[44] Automatic compound inflation protection increased daily benefit 
amounts and the remaining amount of the maximum lifetime benefit by 5 
percent each year without increasing premiums. The increase in benefits 
continued even if the enrollee had begun to receive covered long-term 
care services. 

[45] The future purchase option offered the opportunity to increase the 
daily benefit amount and the remaining amount of the maximum lifetime 
benefit every 2 years at an extra cost. When offered the option to 
increase benefits, the enrollee could not be receiving covered long-
term care services. The benefit increases would be based on increases 
in the Consumer Price Index for Medical Care. Once the enrollee had 
declined three offers to increase benefits, the offers would not start 
again unless the enrollee specifically requested one and provided 
evidence of good health. The premium for the additional coverage was 
based on the enrollee's age and premium at the time the increase took 
effect. With each inflation offer, the enrollee could also switch to 
the automatic compound inflation-protection option without proof of 
good health, as long as he or she was not eligible for benefits at that 
time and had not declined three offers in the past. 

[46] Qualified relatives include current spouses of employees and 
retirees; adult children at least 18 years old--including natural, 
adopted, and stepchildren, but not foster children--of living employees 
and retirees; and parents, parents-in-law, and stepparents of living 
employees but not of retirees. 

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