Lawmakers blast John Hancock’s long-term-care rate hike

Members of Congress took to task John Hancock Life and Health Insurance Co. and the federal Office of Personnel Management in a hearing last week, blasting them for an unexpected rate hike in long-term-care insurance that would hit federal employees.

“We have 6,000 people in Florida who did the right thing, and now they’re going to get a 25% rate increase?” Sen. George LeMieux, R-Fla., said at the hearing.

“There shouldn’t be any increase in premiums or a decrease in benefits,” he said. “If there’s going to be a change, then they should be refunded the difference.”

Sens. Daniel Akaka, D-Hawaii, and Herb Kohl, D-Wis., held a joint hearing of the Special Committee on Aging and the Homeland Security and Governmental Affairs Subcommittee on Oversight of Government Management, the Federal Workforce and the District of Columbia to discuss a premium rate hike as high as 25% — scheduled to take effect in January — which would affect more than 140,000 federal workers holding these policies.

At the center of the debate was an arrangement the Office of Personnel Management had with John Hancock as a carrier in the program and what clients were told about the benefits.

During his testimony, policyholder Chester M. Joy, a retired employee of the Government Accountability Office, said that he and his wife signed up for the LTC program when it began in 2002, shelling out more than $60,000 in premiums for an automatic compound-inflation option through the Office of Personnel Management’s program.

He said that he received documents from that office indicating that premiums would remain flat and that benefits would have a 5% compounded increase each year.

The premium hike means not only that the office went back on its locked-in premium rate but that the insurer’s original contract with the Office of Personnel Management was limited to seven years, so Mr. Joy fears that the rates could also rise with each new contract.

“All ACI policyholders we’ve spoken with agree we never would have purchased these policies if we had known that OPM’s “pay more now but lock in a flat rate’ statement was not true,” he said.

Marianne Harrison, president and general manager of LTC insurance at John Hancock, pointed out that the rates had to go up, because over the first seven years, the actual experience of the insured individual was very different from the assumptions that were used to develop rates in 2001. More insured people will be reaching the age in which claims rise than was originally expected, she said.

Compounding that problem, investment performance was worse than expected, which also affected rates, Ms. Harrison said.

Daniel Green, deputy associate director for employee and family support policy at the Office of Personnel Management, said that his group isn’t happy with the rate hikes but that they are necessary to keep the LTC plan going.

“Without this adjustment, the long-term-care program faces a projected shortfall in funding for the enrollees with the ACI option,” he said during his testimony.

The office not only conducted its own actuarial analysis and reviewed John Hancock’s projections but also hired an independent actuarial consultant to review the rate hikes.

“So that sufficient funds will be available to pay benefits to enrollees in the future, we believe it would be irresponsible not to increase premiums at this time,” Mr. Green said.

At the hearing, Sen. Roland W. Burris, D-Ill., suggested that if John Hancock needs the premium hikes, both the insurer and the office ought to grandfather in the affected insured individuals to spare them from the rate hikes.

“They’ve been paying money into this system, and now they’re going to get hit,” he said.

Mr. Burris said that because employees were given erroneous information, the legislation should be amended to prevent them from having to pay additional premiums.

E-mail Darla Mercado at [email protected].

Related Topics: John Hancock Funds LLC