By Matthew Spieler, CQ Staff
January 5, 2007 -- The Government Accountability Office (GAO) has released a report on the challenges facing the Federal Long Term Care Insurance Program as the demand for nursing home care increases.
"As the elderly population continues to grow, particularly with the aging of the baby boom generation, the increasing demand for long-term care services will likely strain federal and state resource," the report, which was published Dec. 29, states.
The prospect of a burgeoning demand for long-term care moved the federal government to offer such a benefit to some of its employees beginning in 2002. On Oct. 15, 2001, an estimated 19 million employees were eligible for the benefit. In September 2006, roughly 214,000 employees had enrolled in the program.
The report singled out a fixed profit structure in which the corporate partners that administer the federal program receive a guaranteed profit payment. "Carriers" in the private sector have no such guarantee. The profit payment structure includes three different payments for risks undertaken by the administrators. The report notes that "in contrast to the federal program, profits realized by carriers offering other long-term care insurance plans generally are not based on explicit profit structures [but rather] realize profits or losses according to the experience of the programs they insure."
In response, the Office of Personnel Management (OPM) said it plans to revisit the profit structure as it renegotiates a contract for the federal program.
Robert Laszewski, president of Health Policy and Strategy Associates, said he would not characterize the guaranteed payments as an unusual profit scheme, but described them as "an enticement to enter" into the contract. Laszewski said a more significant problem with the long-term care insurance program is that it "doesn't work for lower-income people."
The federal program also pays out considerably less money in claims than the corporate partners running the program originally projected it would, according to the report. The companies that formed a joint venture to run the program are John Hancock Life Insurance and Metropolitan Life Insurance.
With respect to lower claims revenues, the GAO recommends that OPM "analyze the claims experience and assumptions affecting premiums to inform forthcoming contract negotiations for the administration of the federal program."