The government has suspended for two years its sale of long-term care insurance policies to its  federal employees. Experts are now wondering if the program ever will return in its current form. 

The Federal Long Term Care Insurance Program (FLTCIP), was halted when John Hancock Life & Health Insurance Company, the carrier that operated the the long-running program, warned the federal Office of Personnel Management (OPM) that premiums now are unsustainable and that they should probably request significant rate hikes. Of course, OPM provides benefits to federal employees of all agencies. 

On December 19th, the program will stop accepting new applications beginning Hancock will continue to cover existing policyholders and pay claims. However, current policyholders will be unable to increase their coverage during the suspension. 

The federal benefit covers about 267,000 people and is probably the largest group long-term care insurance program in the nation. However, OPM has been selling only about 6,000 new policies annually, which is roughly about 0.1 percent of its workforce. One major factor contributing to this small percentage is the government does not strongly market and make known the benefit to its workers. 

The suspension is just the latest blow to an industry that has been shrinking for decades. 

Overall, in 2020 only 50,000 Americans bought stand-alone long-term care insurance, according to the actuarial firm Milliman. That number increased in 2021 but mostly because of a surge of sales to residents of Washington State. Most of them purchased private insurance to avoid a small payroll tax hike that state imposed to fund a public long-term care insurance program. 

Last year, another roughly 500,000 people purchased combination or hybrid policies that add long-term care coverage to certain life insurance products or annuities, though that number also was inflated by Washington State sales. 

Like most long-term care insurance buyers, federal employees have been hit by steep premium hikes in recent years. For instance, prices have more than doubled for some older policies. 

Today, a 60-year-old federal employee can buy a government policy that covers $200-a-day for three years for about $2,400 annually. By industry standards, that’s reasonable. However, some features of the federal program have kept premiums high. For example, new employees have been allowed to undergo only limited underwriting before they can purchase. 

While that feature makes coverage easier to access, it also creates a riskier pool of enrollees which drives up premiums for everyone. By contrast, in recent years most long-term care insurers have been imposing stricter underwriting on perspective buyers so that one-third or more are unable to purchase coverage. 

OPM is expected to use the next two years to rethink the program and the products it offers. However, the agency is somewhat hamstrung by Congress. Federal law requires OPM to offer long-term care coverage that controls the amount of the kinds of insurance it can sell to federal workers. For example, it may be unable to offer hybrid products without a change in the law. 

For whatever reason OPM would want to resurrect the program, the question of whether it can find insurance companies willing and able to sell the coverage remains. Hancock has been the sole carrier for years largely because OPM could not contract with other insurance partners. The current Hancock agreement expires in April. It is unclear whether the insurer and the government intend to agree to extend the contract.  

A Hancock spokesman referred all questions to OPM. 

OPM’s decision to suspend new applications is just another sign of a failing private stand-alone long-term care insurance market. The good news could be that it might encourage creative thinkers to come up with a reimagined product that will benefit both insurers and a new generation of consumers. 

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