[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




 FEDERAL LONG	TERM CARE INSURANCE PROGRAM: EXAMINING PREMIUM INCREASES

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         GOVERNMENT OPERATIONS

                                 OF THE

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 30, 2016

                               __________

                           Serial No. 114-126

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee       CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
TIM WALBERG, Michigan                    Columbia
JUSTIN AMASH, Michigan               WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona               STEPHEN F. LYNCH, Massachusetts
SCOTT DesJARLAIS, Tennessee          JIM COOPER, Tennessee
TREY GOWDY, South Carolina           GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming           ROBIN L. KELLY, Illinois
THOMAS MASSIE, Kentucky              BRENDA L. LAWRENCE, Michigan
MARK MEADOWS, North Carolina         TED LIEU, California
RON DeSANTIS, Florida                BONNIE WATSON COLEMAN, New Jersey
MICK MULVANEY, South Carolina        STACEY E. PLASKETT, Virgin Islands
KEN BUCK, Colorado                   MARK DeSAULNIER, California
MARK WALKER, North Carolina          BRENDAN F. BOYLE, Pennsylvania
ROD BLUM, Iowa                       PETER WELCH, Vermont
JODY B. HICE, Georgia                MICHELLE LUJAN GRISHAM, New Mexico
STEVE RUSSELL, Oklahoma
EARL L. ``BUDDY'' CARTER, Georgia
GLENN GROTHMAN, Wisconsin
WILL HURD, Texas
GARY J. PALMER, Alabama

                   Jennifer Hemingway, Staff Director
                 David Rapallo, Minority Staff Director
                 Kevin Ortiz, Professional Staff Member
                           Willie Marx, Clerk

                                 ------                                

                 Subcommittee on Government Operations

                 MARK MEADOWS, North Carolina, Chairman
JIM JORDAN, Ohio                     GERALD E. CONNOLLY, Virginia, 
TIM WALBERG, Michigan, Vice Chair        Ranking Minority Member
TREY GOWDY, South Carolina           CAROLYN B. MALONEY, New York
THOMAS MASSIE, Kentucky              ELEANOR HOLMES NORTON, District of 
MICK MULVANEY, South Carolina            Columbia
KEN BUCK, Colorado                   WM. LACY CLAY, Missouri
EARL L. ``BUDDY'' CARTER, Georgia    STACEY E. PLASKETT, Virgin Islands
GLENN GROTHMAN, Wisconsin            STEPHEN F. LYNCH, Massachusetts
















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 30, 2016................................     1

                               WITNESSES

Mr. Michael Doughty, President General Manager, John Hancock 
  Insurance
    Oral Statement...............................................     5
    Written Statement............................................     7
Mr. John O'Brien, Senior Advisor for Health Policy, U.S. Office 
  of Personnel Management
    Oral Statement...............................................    18
    Written Statement............................................    20
Mr. Laurel Kastrup, Chair of the Health Financial Reporting and 
  Solvency Committee, American Academy of Actuaries
    Oral Statement...............................................    25
    Written Statement............................................    27
Mr. Richard G. Thissen, National President, National Archive and 
  Retired Federal Employees Association
    Oral Statement...............................................    35
    Written Statement............................................    37
Marc A. Cohen, Ph.D, Clinical Professor of Gerontology, 
  University of Massachusetts Boston
    Oral Statement...............................................    49
    Written Statement............................................    51

                                APPENDIX

Statement for the record from Anthony M. Reardon, National 
  Treasury Employees Union. submitted by Mr. Connolly............    74
Statement by Senator-Elect Chris Van Hollen, submitted by Mr. 
  Meadows........................................................    77

 
 FEDERAL LONG-TERM CARE INSURANCE PROGRAM: EXAMINING PREMIUM INCREASES

                              ----------                              


                      Wednesday, November 30, 2016

                  House of Representatives,
             Subcommittee on Government Operations,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:06 p.m., in 
Room 2154, Rayburn House Office Building, Hon. Mark Meadows 
[chairman of the subcommittee] presiding.
    Present: Representatives Meadows, Jordan, Walberg, Buck, 
Grothman, Connolly, and Lynch.
    Also present: Representatives Comstock, Beyer, and Delaney.
    Mr. Meadows. The subcommittee on Government Operations will 
come to order. Without objection, the chair is authorized to 
declare a recess at any time. The gentleman from Virginia is on 
his way. And so we're going to go ahead and try to get this 
started in the interest of your time and some pressing 
schedules that are here.
    I'd like to start off by acknowledging just the incredible 
work of the staff, both in majority and minority, on their 
preparation for this particular hearing. It's an issue that, 
obviously, has great impact, but it's also one that was not on 
my bucket list. And so it's been interesting to be able to come 
up to speed on that and be aware of it.
    And as you know, the Federal Long Term Care Insurance 
Program helps Federal employees prepare for the future 
healthcare needs by enrolling in long-term care insurance 
coverage. Federal employees can help reduce the financial 
burden of acquiring care as they grow older. And these burdens, 
obviously, can be very costly.
    According to the Department of Health and Human Services, 
Americans turning 65 today will spend an average of $138,000 in 
long-term care services. By purchasing insurance now, the 
Federal employees can start paying for those services that they 
will need well into the future.
    Alarmingly, the cost for this insurance continues to rise, 
and on July 18, the Office of Personnel Management, better 
known as OPM, after signing a new contract with John Hancock 
Insurance to administer the program, announced that the premium 
rates for most enrollees will drastically increase. Premiums 
have increased an average of $111, representing an 83 percent 
increase for nearly all of the 274,000 program enrollees.
    For 102,000 of these enrollees, the rate increase was 
between 100 and 126 percent, translating to about $200 per 
month extra that people must pay to maintain the coverage. 
These most recent premium increases come after rates have 
already increased in 2009 by nearly 25 percent. And for many 
enrollees, including some 7,500 North Carolinians who are part 
of this program, this cost increase has been a financial 
difficulty. Unfortunately, these rates--the rate increases are 
not limited just to the Federal program.
    Premiums have increased for nearly all long-term care 
insurance programs in the private sector as well, as my mother 
has very eloquently illuminated to me. And so a large reason 
behind these premium increases have to do with the nature of 
long-term care insurance. Insurance carriers must project a 
host of variables, including mortality rates, voluntary lapses, 
interest rates, morbidity rates and the like.
    The values of these variables are constantly changing, and 
when projected several years into the future, it makes for the 
actuarial assumptions to be difficult, if not off in a number 
of cases. This necessitates premium increases at times in order 
for the insurance carriers to guarantee it can cover the 
expected benefits. Fortunately, insurance carriers have begun 
to acquire actual claim data in order to make more informed 
assumptions.
    The hearing today will provide this committee the 
opportunity to delve into the variables that actually must be 
taken into account when setting these premium rates. This 
hearing will also allow the committee to look at factors 
affecting the lack of competition for Federal programs 
contracts. I'm concerned only that one carrier has bid on this 
contract, you know, both the second and third contracts. 
Encouraging healthy competition for Federal long-term care 
insurance programs contracts is an important aspect.
    And so I look forward to hearing all of your testimony that 
we will receive today. And I recognize the gentleman from 
Virginia, my good friend, the ranking member, Mr. Connolly, for 
his opening statements.
    Mr. Connolly. Thank you, Mr. Chairman. And thank you for 
the honorable way in which you have responded to my request to 
have this hearing. I really appreciate it, and you've kept your 
word in helping make sure we had a hearing on this very 
important topic. I also ask unanimous consent to enter a 
statement into the record from Anthony Reardon, the national 
president of the National Treasury Employees Union.
    Mr. Meadows. Without objection.
    Mr. Connolly. I thank the chair. The Federal Long Term Care 
Insurance Program, also known as FLTCIP, was created in 2002 to 
provide affordable long-term care insurance to Federal workers 
and their families. The program has been administered by John 
Hancock Life & Health Insurance Company and overseen by the 
Office of Personnel Management. Although the Federal Government 
provides benefits to Federal employees, it is paid for by 
Federal employees with no government contribution.
    This past July, OPM announced rate increases in the program 
that affected nearly all of the 274,000 FLTCIP enrollees. Like 
many of my constituents, I was shocked to learn that the 
increases averaged 83 percent, equivalent to an additional $111 
per month beyond the current premium that enrollees were 
paying, and nearly 40 percent of enrollees were actually 
subject to 126 percent.
    OPM has an obligation, it seems to me, to the Federal 
employees enrolled in the program to provide a service that's 
affordable. OPM's management and John Hancock's administration 
of the contract has left many FLTCIP enrollees scrambling to 
find ways to find affordable alternatives or to pay for the 
increasing costs of long-term care through other methods, and 
that raises serious concerns. Many of my constituents are 
worried about how they will afford to pay increased premiums. 
Many are retirees on fixed income and a huge increase, which 
they did not expect and did not plan for, is putting them in a 
financially untenable position.
    Although Hancock provided enrollees with a few personalized 
rate options, the choices are less than satisfying to most of 
my constituents. If enrollees choose to keep their existing 
long-term care coverage, they somehow have to find a way to get 
the additional money to pay for it. If they cannot afford to 
pay the increased premium, then they have to reduce their 
coverage to lower the cost or give it up entirely. Those are 
not particularly desirable options.
    It's important to note that this was not the first rate 
increase since FLTCIP's inception. In 2009, after Hancock was 
awarded the FLTCIP second contract, 66 percent of enrollees 
were notified their premiums would increase by up to 25 
percent. Prompted by the alarming increases in FLTCIP premiums 
in October 2009, the Senate Permanent Select Committee on Aging 
held a hearing to examine FLTCIP and long-term care insurance 
in general. Witnesses from OPM and Hancock at that time agree 
that the misleading language used in marketing materials led 
enrollees to believe they would not suffer any, much less, 
egregious increases in premiums. The series of dramatic rate 
increases over the last two contract terms are propelling 
FLTCIP premium prices out of reach for the average middle-class 
Federal employee.
    When FLTCIP was established by the Long-Term Care Security 
Act, it was intended to be an affordable way for individuals to 
protect against the risk of losing all of their retirement 
savings because of a long-term illness. It was meant to provide 
a safety net for Federal employees in old age. During an April 
1999 Oversight subcommittee hearing, then representative Joe 
Scarborough, now a television host, the lead sponsor of the 
bill, a Republican, stated that he hoped to make long-term 
care, quote, ``affordable and available to all Federal 
employees.''
    Maybe we should have subpoenaed him, Mr. Chairman.
    Today, we have a product that has become unaffordable for 
most Federal workers. It's clearly deviated from the intent of 
the Act. However, Federal workers are not alone here. Industry 
experts are saying that all middle-class Americans are 
struggling with the same problem. Rate increases and benefit 
reductions are happening in the private sector too when it 
comes to long-term care. And nearly all private sector 
companies have abandoned unlimited long-term care coverage, 
leaving no long-term care insurance option for those who want 
to guard against the risk of catastrophic long-term care costs.
    I'm concerned about the future of this important kind of 
insurance, as I know you are, Mr. Chairman. Long-term care 
insurance was designed to close gaps in coverage. Long-term 
care costs are not covered by Medicare or health insurance, and 
Medicaid only covers such costs for low-income individuals. 
With over 70 percent of people age 65 and older needing some 
long-term care during their lives and costs of semiprivate 
nursing homes averaging well above $100,000 annually, the 
necessity of this insurance seems clear.
    John Hancock, one of the few remaining and largest long-
term care providers in the United States serving 1.2 million 
enrollees, has recently announced it will be pulling out of the 
private sector long-term care market, as I understand it. As 
options for long-term care dwindle, many individuals rely on 
their families to provide care. However, family caregivers are 
becoming scarcer as baby boomers will outnumber caregivers 4 to 
1 by 2030. In 2030, this baby boomer will be over 70.
    This hearing not only provides an opportunity to look at 
ways to ensure that FLTCIP lives up to its original promise, 
but also understand the reasons for the rate increases so we 
can try to work together to find solutions to address the 
failing market. This problem affects hundreds of thousands of 
Federal employees and retirees and millions of middle-class 
Americans. The market has not solved this problem on its own. 
And today's hearing cannot be the last on the topic.
    Historically, Republicans and Democrats have agreed that 
when the market is unable to solve a problem, the government 
has an appropriate role to play in finding solutions that work 
for American families. I feel strongly that this market failure 
and the exposure of many Americans to catastrophic costs 
deserves our attention. We've got to safeguard about 
affordability and stability of long-term care premium rates for 
middle-class Federal workers and, indeed, for all Americans.
    I thank all of the witnesses for being here. And, again, 
thank you, Mr. Chairman, for delivering on your promise.
    Mr. Meadows. I thank the gentleman for his eloquent words. 
I also would note that we will hold the record open for 5 
legislative days for any member that would like to submit a 
written statement.
    The chair notes the presence of the gentlewoman from 
Virginia, Mrs. Comstock is here. It is my understanding that 
the gentleman from Virginia, Mr. Beyer, and the gentleman from 
Maryland, Mr. Delaney, may indeed come as well.
    We appreciate, Mrs. Comstock, your interest in this topic.
    Mr. Connolly. Mr. Chairman?
    Mr. Meadows. Yes.
    Mr. Connolly. I would ask unanimous consent that all of 
those named be given the privilege of participating as if they 
were a member.
    Mr. Meadows. Without objection, so ordered.
    I will also ask unanimous consent to enter into the record 
a statement from the representative from Maryland, Chris Van 
Hollen, on this particular subject.
    Without objection, so ordered.
    Mr. Meadows. We'll now recognize our panel of witnesses. 
I'm pleased to welcome Mr. Michael Doughty, president and 
general manager of John Hancock Insurance. Welcome. Mr. John 
O'Brien, senior adviser for health policy at the U.S. Office of 
Personnel Management. Welcome, Mr. O'Brien. Ms. Laurel Kastrup, 
chair of the Health Financial Reporting Insolvency Committee at 
the American Academy of Actuaries. Thank you for being here. 
Mr. Richard Thissen, national president of the National Active 
and Retired Federal Employees Association. Welcome. And Mr. 
Marc Cohen, clinical professor of gerontology at the University 
of Massachusetts Boston. Welcome to you all. And pursuant to 
committee rules, all witnesses will be sworn in before they 
testify. So if you would please rise and raise your right hand.
    Do you solemnly swear or affirm that the testimony you're 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    Let the record reflect the witnesses answered in the 
affirmative.
    You may take your seat. In order to allow time for 
discussion, we would ask that you would limit your oral 
testimony to 5 minutes. Your entire written statement, however, 
will be made part of the record.
    And so I'd like to go ahead and recognize you, Mr. Doughty, 
for 5 minutes.

                       WITNESS STATEMENTS

                  STATEMENT OF MICHAEL DOUGHTY

    Mr. Doughty. Thank you, Chairman Meadows, Ranking Member 
Connolly, and members of the subcommittee. I'm Mike Doughty, 
president and general manager of John Hancock Insurance. I 
oversee John Hancock Insurance products, including the Federal 
long-term care program.
    I appreciate the opportunity to be here today to discuss 
the Federal Long Term Care Insurance Program and the contract 
that OPM awarded to John Hancock Life & Health Insurance 
Company in April 2016. John Hancock has been involved with the 
program since its inception, and we remain committed to 
providing a strong and financially sound long-term care 
insurance product for Federal employees.
    We recognize enrollees' legitimate concerns about the 
premium increase and the very real impact that it will have on 
people's lives. I appreciate the opportunity to address that 
increase, the reasons that it was necessary, and the steps that 
John Hancock has taken, in coordination with OPM, to provide 
enrollees with alternative options designed to mitigate the 
financial burden of the rate increase.
    Congress created the Federal Long Term Care Insurance 
Program 16 years ago. Under the authorizing legislation, OPM 
conducts a competitive bidding process and awards a 7-year 
contract to a company to provide long-term care insurance. 
Regardless of the company that received the contract, the 
legislation has a unique feature that requires all funds, 
premiums, and investment returns, to be maintained separately 
in a fund called the Experience Fund. The Experience Fund is 
used exclusively for the program's assets and liabilities, and 
it transfers to a new carrier if OPM awards the contract to 
another provider.
    Also, the Experience Fund receives no taxpayer money. All 
benefits are paid by the enrollees' premiums and the fund's 
investment returns. For these reasons, it is critically 
important that the premiums and the projected investment 
returns of the Experience Fund match the projected claims that 
enrollees will make many decades into the future. The entire 
industry has learned that making predictions about claims in 
the far-distant future is very challenging. But it was these 
projections that made the recent premium increase necessary.
    In 2013, John Hancock observed trends in our non-Federal 
long-term care insurance policies that we determined could 
affect the Federal program. So we began an assessment of the 
Federal program. The review of the Federal program, which was 
completed in May 2014, showed that the Experience Fund would 
experience a deficit in the future. We found that new claims 
were increasing, particularly at older ages, claims were 
lasting longer than expected, and policies with higher daily 
benefits had higher than expected claims. We continued to 
evaluate the data.
    Overall, the data revealed changes in mortality rates, 
people are living longer than previously expected; morbidity 
rates, more people are requiring long-term care and for longer 
periods of time; and investment changes. We have been in a 
sustained period of low interest rates.
    On page 7 of my written testimony, there is a chart that 
captures the effects of these changes. The Experience Fund was 
projected to enter a deficit between 2035 and 2040 without a 
premium change. With the premium change, the Fund is projected 
to maintain funding sufficient to cover all enrollees' 
projected future claims.
    Both John Hancock and OPM have a contractual obligation to 
adjust the premiums to make sure that the Experience Fund is 
able to meet the needs of enrollees for many decades into the 
future. And that's what we did. Importantly, these projections 
were reviewed by John Hancock's experts, by OPM, by John 
Hancock's independent actuarial firm, and by OPM's independent 
actuarial firm.
    Next, recognizing the significance of the premium change, 
John Hancock worked closely with OPM on the implementation.
    First, we created a program to communicate with enrollees 
about the premium increase, including a Web site, webinars, 
videos, FAQs and a professionally staffed call center.
    Second, we created several alternative options which were 
designed to permit enrollees to adjust their coverage in light 
of the premium increase.
    Finally, Mr. Chairman, I want to note that John Hancock 
agreed, in our new contract with OPM, to reduce the charges 
that we receive under the contract so that John Hancock will 
not have an increased profit from this rate increase.
    Thank you for the opportunity to be here today. I look 
forward to discussing possible ways to strengthen the Federal 
Long Term Care Insurance Program, and I would welcome the 
opportunity to answer your questions.
    [Prepared statement of Mr. Doughty follows:]
    
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  
    
    
    Mr. Walberg. [Presiding.] I thank the gentleman.
    And I recognize Mr. O'Brien for your 5 minutes of 
testimony.

                   STATEMENT OF JOHN O'BRIEN

    Mr. O'Brien. Thank you, Vice Chairman Walberg, Ranking 
Member Connolly, members of the subcommittee. Thank you for the 
opportunity to testify on the Federal Long Term Care Insurance 
Program.
    OPM's mission is to recruit, retain, and honor a world-
class Federal workforce to serve the American people. Part of 
that mission requires OPM to administer benefits, including the 
insurance product such as the Federal Long Term Care Insurance 
Program, for Federal employees, annuitants, and their families.
    At the outset, let me make clear that I share the 
committee's frustration that premiums needed to be raised by 
such a significant amount. I and my colleagues at OPM are 
painfully aware of the financial burden and hard choices those 
premium increases placed on participants. However, we cannot 
avoid our primary responsibility to those participants to 
assure that when the time comes for someone to use the benefit 
that they have paid for, the funds will be there to deliver 
those services.
    The Federal Long Term Care Insurance Program currently 
serves roughly 270,000 members whose premiums cover 100 percent 
of program's costs. All those premiums and the income those 
premiums generate is held in a single Experience Fund by John 
Hancock. While the fund is held by John Hancock, it belongs to 
the program and not the insurer. The Federal Long Term Care 
Insurance Program must assure that it can provide benefits 
decades into the future. Therefore, premiums must be based on 
long-term projection of both costs and revenues.
    We are here today because at the end of the most recent 
contract cycle, the long-term insurance program had to respond 
to two hard facts. First, estimates of long-term care costs are 
increasing. And second, projection of long-term revenues to 
support those costs are decreasing. The confluence of higher 
anticipated costs and lower anticipated returns is not unique 
to the Federal Long Term Care Insurance Program. The entire 
long-term care insurance market faces this challenge.
    Given these circumstances, increased premiums were 
necessary for the long-term viability of the Experience Fund. 
Without the increase, there would be an unacceptable risk that 
the Experience Fund would not have sufficient funds to pay for 
future claims.
    In order to test the market and ensure that the reasonable 
efforts were made to attract the most competitive proposal, OPM 
made the decision to recompete the contract. John Hancock was 
the sole bidder, and OPM awarded the contract in April 2016. 
The premium rates proposed by John Hancock were reviewed by 
OPM's staff and its actuaries. In addition, OPM contracted with 
a separate independent actuary to evaluate the proposed premium 
rates and confirm the reasonableness of the assumptions used.
    While the long-term viability of the Experience Fund made a 
substantial rate increase necessary, OPM was well aware of the 
economic hardship that the rate increase would cause 
participants. OPM's priority became to do all it could to 
ensure that enrollees had the information and opportunity to 
make informed choices about the costs and benefits of coverage 
in light of their own circumstances and needs.
    Working with John Hancock and long-term care partners, we 
conducted an enrollee decision period from July the 18 to 
September 30. Outreach efforts included three direct mailings 
to enrollees with personalized information about the rate 
increase and options that they could use to adjust their 
benefit package to reduce their premium or keep the same 
premium; a Web site, also with personalized information, as 
well as a set of informational videos that explain benefit 
options; and finally, a fully staffed call center that assured 
individuals could get their questions answered by a real 
person.
    In large part, the enrollees took advantage of this 
enrollee decision period. By the end of October, 172,000 
enrollees, or just shy of two-thirds of the entire population, 
took some action in response to the premium changes. Of those 
who took action, most chose to keep their premium constant by 
reducing their benefit package.
    While OPM remains committed to the FLTCIP program and the 
individuals it serves, we must also acknowledge that the long-
term care insurance marketplace has changed substantially from 
2002 when the program started. At that time, over 100 insurers 
offered long-term care products. Today, only a handful of 
insurers are actively selling long-term care insurance, and 
those insurers are primarily serving individuals by individual 
policies rather than group plans.
    The challenge of matching premiums with long-term costs and 
revenues is real and ongoing. OPM staff is and will continue to 
closely monitor these trends and what it means for the long-
term care insurance program and work to ensure that 
participants have an array of options to meet their needs.
    Thank you for the opportunity to testify today, and I am 
happy to address any questions you may have.
    [Prepared statement of Mr. O'Brien follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Walberg. I thank the gentleman.
    I recognize now Ms. Kastrup for your 5 minutes of 
testimony.

                  STATEMENT OF LAUREL KASTRUP

    Ms. Kastrup. Vice Chair Walberg, Ranking Member Connolly, 
and distinguished members of the subcommittee, thank you for 
the opportunity to testify on the issue of examining premium 
increases for long-term care insurance.
    My name is Laurel Kastrup. I am an actuary specializing in 
long-term care insurance and financing. I am representing the 
American Academy of Actuaries. The Academy is a nonpartisan 
professional association representing the actuarial profession. 
Our mission is to serve the public and the U.S. actuarial 
profession. We do this by providing independent and objective 
actuarial information, analysis, and education to help in the 
formation of sound public policy.
    I would like to start by emphasizing the importance of 
actuarial input when considering the design and evaluation of 
any potential long-term care policy approach. Actuaries are 
uniquely qualified, according to our professional standards. 
Qualified long-term care actuaries play a crucial role in the 
design of long-term care financing systems, from private long-
term care insurance to public programs that provide long-term 
care benefits.
    Actuaries have specialized expertise in managing the risk 
of adverse selection in insurance coverage. We have the ability 
to recognize and incorporate uncertainty into cost projections 
and premiums. We also have experience in evaluating the long-
term solvency and sustainability of public and private 
insurance programs. The Academy recently developed an issue 
brief to highlight important underlying factors affecting long-
term care insurance premium rate increases. Without long-term 
care insurance, many more people would exhaust their savings on 
care costs and then potentially rely on public programs such as 
Medicaid for their additional care needs.
    Long-term care insurance requires a long projection period 
with assumptions extending over 50 years into the future, which 
creates a high level of uncertainty. The premium rates needed 
to ultimately be sufficient are also affected by changing 
circumstances, such as changing service providers, for example 
the growth of assisted living facilities; changes in incidents 
of Alzheimer's disease; the effects of mortality improvement in 
the population; and changes in family composition reducing 
availability of caregivers.
    Determining premium increases is a relatively 
straightforward mathematical calculation. However, determining 
projection assumptions can be difficult. Actual historical 
experience that are sufficiently credible is needed to justify 
the future assumptions used in projections. With long-term care 
insurance, it can take a long time from the purchase of a 
policy until the first time a claim is submitted. This means 
that for a relatively young group of policy forms, there is 
often little claims experience to justify premium rate 
increases based on those forms alone.
    Actuaries are required by actuarialstandards of practice to 
use alternative data sources, such as experience from the 
insurance companies older, similar policy forms or public data 
for identifying reasonable assumptions. Waiting until there is 
adequate claim information on each policy form can result in 
much larger, less affordable rate increases.
    Insurers have routinely allowed insureds to reduce coverage 
by changing benefit options in order to help offset some or all 
of the rate increase. In an effort to enable policyholders 
faced with a rate increase to retain significant coverage, some 
companies have started making available an option for 
policyholders to avoid the rate increase by reducing their 
future automatic built-in inflation increases.
    In closing, I want to mention that I understand that these 
premium rate increases can affect families. My own personal 
experience with long-term care insurance was that my grandpa 
had a policy. It had a small daily benefit. He gave up the 
inflation option to avoid rate increases. When he moved into an 
assisted living facility, his long-term care insurance policy, 
along with his income from Social Security was enough to make 
the cost affordable for him.
    Predicting future policyholder and service provider types 
and availability can be difficult. This uncertain future makes 
it important that there is a way to take corrective action. The 
more conservative assumptions used in today's pricing of 
private long-term care insurance and the improved speed at 
taking corrective action should improve future projections 
resulting in fewer and smaller rate increases.
    I, again, thank you for the opportunity to be here today 
with you and share the recent analysis by the American Academy 
of Actuaries on long-term care insurance. I would be happy to 
answer any questions.
    [Prepared statement of Ms. Kastrup follows:]


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    Mr. Walberg. Thank you, Ms. Kastrup.
    And now I recognize Mr. Thissen for your 5 minutes of 
testimony.

                STATEMENT OF RICHARD G. THISSEN

    Mr. Thissen. Good afternoon, and thank you for the 
opportunity to express NARFE's view on premium increases for 
enrollees in the Federal Long Term Care Insurance Program, or 
FLTCIP.
    NARFE was proud to have played the lead role in supporting 
legislation creating FLTCIP, but we are extremely disappointed 
in the recent premium increases. FLTCIP premiums increased by 
an astounding 83 percent on average and by as much as 126 
percent for nearly 40 percent of the enrollees. The average 
increase amounts to $111 per month. For many, the increase will 
be much larger.
    These cost increases come as a rude awakening for 
enrollees. Following the announcement in July, they were 
presented with difficult and unfair choices: Pay substantially 
higher premiums, reduce coverage significantly, or abandon what 
for some had become more than a decade-long investment in 
protecting their future. This situation should not have 
occurred and signals the need for changes in the program.
    We have heard from hundreds of NARFE members, and their 
messages have been personal and blunt. One NARFE member 
reported her premiums would rise from $275 to more than $600 
per month. She is not alone in her experience. Another member 
told me, ``I am so much older now than when I entered the 
Federal plan, the cost to switch to another plan would be 
prohibitive. All my bills are fixed. The new payment will have 
to come from the grocery budget.'' Another said, ``We have 
already paid John Hancock $56,000 in premiums. We cannot quit 
now. We have too much invested. We are outraged by this bait 
and switch scheme,'' end quote.
    For these enrollees, the reasons behind the increases come 
as little comfort, but are worth examining. The actuaries got 
it wrong. Long-term care costs are rising faster than expected 
and interest rates are expected to remain low. This may be the 
case, but the actuaries and the insurance company did not just 
get it wrong, they got it very wrong.
    We hope this hearing, at the very least, provides the 
opportunity to further investigate why the assumptions were so 
far off and how lessons learned from those mistakes may be 
applied to assumptions about the future. But our efforts should 
not end there. We need to plan for long-term care--the need to 
plan for long-term care is as much a reality today as it was 
when the program was created 16 years ago.
    Average long-term care costs are high, $3,800 per month for 
home health, $3,600 to stay in an assisted living facility, 
$7,700 for a private room in a nursing home. Sixty-nine percent 
of Americans will need some long-term care services for an 
average of 3 years. Without adequate insurance, too many will 
be bankrupt and forced to rely on Medicaid.
    Federal employees and retirees want to do the responsible 
thing for themselves and their family. This program seeks to 
address the real need to plan for these future long-term care 
costs, but the lack of price stability and affordability make 
it increasingly difficult to do so. Legislative reforms are 
needed.
    NARFE proposed a number of policy options in my written 
testimony. One of these proposals including providing enrollees 
an option to convert their plans to hybrid long-term care/life 
insurance policies, which would provide price stability. 
Another is to provide options to extend waiting periods or buy 
plans with deductibles which would improve affordability.
    NARFE also supports broader reforms to the national long-
term care policy. The crisis faced by FLTCIP is not unique. 
Individuals in private long-term care insurance plans are 
facing significant premium increases, and neither FLTCIP nor 
any other private long-term care insurance provider is 
continuing to offer unlimited catastrophic coverage.
    Middle-class consumers seeking to insure against the worst-
case scenarios are left with no options at all. Rather, 
Medicaid, a program intended to protect those in poverty, steps 
in as the only catastrophic option for consumers who must 
bankrupt themselves in order to qualify. Instead, NARFE 
supports a public-private partnership with a universal 
catastrophic insurance program that covers costs between the 
first 2 or 3 years of care and private insurance, such as 
FLTCIP, to cover the front end costs of care.
    It is incumbent upon this subcommittee to support real 
reforms that provide Americans with affordable, reliable 
options. Enrollees should not bear the risk when insurance 
companies and actuaries make mistakes, and they should have 
options available to plan for their future needs. NARFE looks 
forward to working with Congress to pursue them. The status quo 
is unacceptable. Thank you so much.
    [Prepared statement of Mr. Thissen follows:]
    
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    Mr. Walberg. Thank you for your testimony.
    And now I recognize Mr. Cohen for your 5 minutes of 
testimony.

               STATEMENT OF MARC A. COHEN, PH.D.

    Mr. Cohen. Thank you, Vice Chair Walberg, Ranking Member 
Connolly, and members of the subcommittee. I'm Marc Cohen, the 
director of the Center for Long-Term Services and Supports at 
the McCormick Graduate School at UMass Boston, and a former 
president and current adviser to LifePlans, Inc., a long-term 
care research, consulting, and risk management company.
    I appreciate the opportunity to testify in this topic. And 
in my testimony today, I will draw upon my 25 years of research 
focused on the private insurance market. I'd like to make three 
broad points today.
    First, the rate increases that we're discussing should be 
viewed within the broader context of the long-term care 
insurance market and the challenges faced by all insurers in 
that market. These rate increases are occurring across almost 
all blocks of business as actuaries learn how the product is 
performing and make adjustments to their initial pricing 
assumptions.
    Second, the current marketplace challenges do not diminish 
the need for an insurance-based solution for middle-class 
Americans, many of whom will face catastrophic costs and 
financial impoverishment in the absence of insurance solutions.
    Finally, without public action, the private insurance 
market alone is unlikely to play a meaningful role in financing 
the Nation's long-term care needs. More specifically, an 
insurance-based public/private partnership stands the best 
chance of moving the needle on protecting middle-class 
Americans from significant costs that threaten their 
retirement.
    Let me begin by making a few key observations to frame some 
of the subsequent discussion. Today, fewer than 10 percent have 
insurance protection, industrywide sales are declining 
significantly, and many companies have exited the market. Thus, 
the market is shrinking rather than growing, and this at a time 
when more Americans are facing significant long-term care 
costs.
    There are a number of reasons why so many insurers have 
stopped offering policies. On the demand side, selling costs 
are high because consumers lack knowledge and understanding 
about long-term care risks and costs. They're confused about 
the role of public programs and there's general mistrust of 
insurers. On the supply side, insurers have faced a variety of 
unpredictable and often uncontrollable risks that are hard to 
spread. For example, given the current funding structure of 
almost all standalone policies, companies must correctly 
estimate yields on investment premiums 20 to 30 years into the 
future. An err of just a few percentage points in such an 
estimate can result in very large premium increases to assure 
adequate funding of future claims.
    Second, unfolding negative claims experience has led to 
large rate increases as insurers waited many years before 
requesting some of these rate increases. Recent research shows 
that people would prefer smaller but more frequent adjustments 
rather than large infrequent ones. The problem is that these 
premium increases have made the product too costly for a 
growing number of middle-class consumers who only have personal 
savings and safety net programs like Medicaid to rely on should 
they require significant amounts of care.
    Despite private sector challenges, variation in long-term 
care needs and expenses make risk pooling through insurance 
desirable. The underdevelopment and growing unaffordability of 
private insurance in the absence of any public insurance 
present a fundamental problem. People have no way to 
effectively plan for what is a perfectly insurable risk.
    Since current strategies have not worked well in assuring 
broad consumer appeal and ensure enthusiasm, what can be done? 
Some concrete actions include simplifying and standardizing 
products to reduce selling costs, changing the structure of 
premiums payments so that there is some level of indexing to 
address both affordability and premium stability issues.
    Also, without expanded Federal and/or State support 
designed to spur both demand and supply, however, the needle is 
unlikely to move enough to protect the majority of middle-class 
Americans. In addition to an educational campaign designed to 
reduce consumer confusion and increase knowledge and awareness, 
we need to think more broadly about shared public and private 
insurance models.
    For example, given that the private insurance market is not 
willing to provide products any longer that cover the 
catastrophic tail risk, one might consider whether and how 
States or the Federal Government might do so. Such an approach 
could provide a basis--a base that the private insurance 
industry could supplement or wrap around, and it would likely 
encourage more insurers to get back into the market, broaden 
the risk pool, and lower the cost of insurance products.
    In the interest of time, I will stop here, but would be 
happy to answer any questions that the committee might have. 
Thank you.
    [Prepared statement of Mr. Cohen follows:]
    
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    Mr. Walberg. Thank you. And I thank the panel for your 
testimony.
    And now I recognize the gentleman from Wisconsin, Mr. 
Grothman, for your time of questioning.
    Mr. Grothman. Interesting testimony. I'm going to ask Ms. 
Kastrup--is that right?--a few questions. I don't know if 
you're familiar with this product as opposed to other products, 
but whenever there's insurance, I don't care whether it's 
health insurance, car insurance, whatever, you always kind of 
wonder how much of that premium is going for claims and how 
much is going for overhead and commissions and that sort of 
thing.
    Could you give me, the insurance industry in general, how 
much of, say, auto insurance, health insurance, and long-term 
insurance, how much goes for claims?
    Ms. Kastrup. I'm not an expert in all of those areas. Very 
few actuaries would cover all three of those areas. You know, 
it depends on the pricing structure. It depends on how the 
products were sold. So it would vary by carrier as well, 
whether it was sold with an agent or not. And so there's not 
really a guideline I can give on that, but I could research 
that and come back.
    Mr. Grothman. You can give me about. When you pay your auto 
insurance premium--you're an actuary, you must have some idea.
    Ms. Kastrup. I'm not a casualty actuary. I don't practice 
in car insurance.
    Mr. Grothman. Okay. Well, which type of insurance do you 
deal with?
    Ms. Kastrup. With long-term care insurance.
    Mr. Grothman. Okay. And the average long--do you have long-
term care insurance? No, you're too young, right? Do you have 
long-term----
    Ms. Kastrup. I myself do not have a policy, no.
    Mr. Grothman. Okay. Do you know--I mean, guess, if your 
parents had a policy, how much do you think goes out average 
and how many--what percentage of the premium goes out in 
claims?
    Ms. Kastrup. Like I said, it would vary by carrier because 
it depends on how the product is sold and what costs go into 
it, whether it's a group policy or an individual policy. 
There's a lot of different factors that go into that. I don't 
know right offhand, but I could look into it and get back to 
you.
    Mr. Grothman. You must have some idea for some policies. 
Don't you? No idea at all?
    Ms. Kastrup. It would depend on your----
    Mr. Grothman. I know it depends. But, you know, they sell 
these things. I mean, is it 10 percent, is it 50 percent?
    Mr. Cohen. I can maybe add something on that.
    Mr. Grothman. Sure.
    Mr. Cohen. At least historically when these products have 
been priced, the idea was that somewhere between 60 to 70 
percent of the dollars that were collected would eventually get 
paid out in claims.
    Mr. Grothman. Okay.
    Mr. Cohen. Just to get for order of magnitude.
    Mr. Grothman. And can you compare that? Are you aware of 
any other kinds of insurance? Can you compare that to 
automobile insurance or some other insurance?
    Mr. Cohen. I don't know. I will say that, as I mentioned in 
my testimony, the selling costs associated with long-term care 
insurance are pretty high because of the lack of information, 
confusion. It's not a sort of a one and done. It's agents 
sitting across the table from people and so on. And that's, you 
know, one of the ways that we are--have to think about making 
the insurance more affordable is how to reduce some of those 
selling costs. They can represent anywhere from 15 to 25 
percent of the premium.
    Mr. Grothman. Okay. You mean for selling costs?
    Mr. Cohen. Yes.
    Mr. Grothman. Okay. And could you compare it to any other 
kind of insurance or you don't know?
    Mr. Cohen. I don't know.
    Mr. Grothman. I'll give you another question here. And--oh, 
Mr. Doughty, you must know, because doesn't John Hancock have 
other insurance other than just long-term care?
    Mr. Doughty. We do offer--the only other kind of insurance 
we offer is life insurance, which has--in terms of selling 
costs, et cetera, it's quite similar. In terms of the ongoing 
administrative costs, because you're paying out--when a client 
goes on claim, you're just paying out one death benefit, so 
that would be slightly lower than in long-term care insurance.
    Mr. Grothman. Okay. I'll give you another question. I've 
always wondered about this on long-term care insurance. With 
any insurance there's a degree of moral hazard, okay, and it's 
your behavior changes because you're insured. People have to 
make a decision, families, in life, as to whether you're going 
to allow somebody to go to a home or not. And I think sometimes 
families do extraordinary things due to the huge cost of long-
term care.You know, they can take care of grandpa for years and 
years, because they don't want to pick out, whatever, $8,000 a 
month or something. And therefore, I've always kind of thought 
that if you have long-term care insurance, maybe people are 
quicker to send grandma to the home than they would be without 
insurance.
    Do you feel there's that degree of moral hazard when people 
buy long-term care insurance?
    Mr. Doughty. Yeah, I believe that that is absolutely a 
reality that people that don't have coverage are far more 
likely to take care of mom and dad for longer. I also think in 
the context of this broader discussion about the future of 
long-term care, and I think we're all in agreement that we need 
to do better. That one of the risks of that reliance in the 
past on families taking care of people is that families are 
becoming more spread out. There's more divided families. So I 
think in the future, it's going to continue to pose a problem 
in terms of overall support for people requiring long-term 
care.
    Mr. Grothman. Can I ask one more quick question?
    Mr. Walberg. The gentleman's time has expired. We'll have 
to move on.
    Mr. Grothman. Okay.
    Mr. Walberg. I thank the gentleman.
    I recognize the gentleman from Virginia, the ranking 
member, Mr. Connolly.
    Mr. Connolly. I thank the chair. And this conversation is 
why I requested this hearing and I'm so glad we're having it.
    But first, just, Mr. Doughty, are you from Baltimore, 
Philadelphia, or Canada?
    Mr. Doughty. I am from Canada.
    Mr. Connolly. Yes. You speak with a diphthong. O-U-T.
    Okay. So, Mr. Doughty, Hancock got out of the private 
sector provision of this kind of coverage. Is that correct?
    Mr. Doughty. Yeah. Just to be perfectly clear on that 
front, we recently decided that we were going to stop selling 
standalone retail long-term care insurance policies.
    Mr. Connolly. Right. Why?
    Mr. Doughty. Primarily because, well, we recognized a 
growing and increasing need. I think as Dr. Cohen noted, it was 
becoming increasingly difficult to actually develop enough 
critical mass in sales to make it a worthwhile business 
venture.
    Mr. Connolly. So it wasn't because people are living too 
long or getting older. It wasn't even the expense, if I'm 
hearing you correctly. It was that you just couldn't get the 
critical mass in terms of making it worthwhile as a marketable 
product?
    Mr. Doughty. Yeah. I think the two are related, though. I 
mean, we have been for a long time a player in the private 
long-term care insurance market. We continue to provide service 
in----
    Mr. Connolly. I understand. But, I mean, if 50 million 
customers knocked on your door tomorrow saying we want this 
insurance, would that change your posture in terms of providing 
it?
    Mr. Doughty. It would. And primarily because we actually 
had come up with a new product that we thought provided some 
rate stability and things like that. So, yes, it would have. 
Definitely.
    Mr. Connolly. All right. And just, what's the chicken and 
the egg thing here? Is the reason for the drop in the 
popularity of the product or the demand for the product because 
of the pricing or is it just we're just not that interested in 
long-term care?
    Mr. Doughty. I think it's both of those issues. I would say 
the primary issue because if you see sales have come down, it's 
because of the pricing.
    Mr. Connolly. Yeah.
    Mr. Doughty. I do believe that there's still a reluctance 
for younger people to think about long-term care.
    Mr. Connolly. Right. Got it.
    So, Dr. Cohen, is this a nonviable product given what's 
happening in the market?
    Mr. Cohen. I don't--I don't think it's----
    Mr. Connolly. We cannot hear you.
    Mr. Cohen. Oh, I won't touch that.
    Mr. Connolly. Okay. Go.
    Mr. Cohen. Sorry. No, I don't think that it's unviable. I 
think that there can be changes, changes in the structure of 
the product. There can be much greater education. Just to your 
last question also. When we look at the primary reason why 
people who have been approached to buy this insurance don't, 
it's a cost issue. They don't see the value proposition. And if 
you don't believe you're at risk, if you believe that public 
programs are going to cover you, then why would you lay out the 
money? There's a lot of work that needs to get done in that 
regard.
    And I also think that these types of products work best in 
the context of a broader public role. And that was one of the 
things I mentioned.
    Mr. Connolly. And real quickly to get it on the record, 
because you suggested that in your testimony, is there a 
precedent for that in terms of the Federal Government getting 
involved directly in sort of trying to fix holes in the market, 
in the insurance industry?
    Mr. Cohen. Sure. I mean, there are--the Federal Government 
has been involved in, for example, organizing risk pools for, 
you know, flood insurance.
    Mr. Connolly. There you go. Flood insurance. The Federal 
footprint is quite considerable. Right?
    Mr. Cohen. I mean, in--when there are issues that are--
especially when it relates to insurance, if there are common 
shocks that affect the entire industry, then you can't--you 
know, you can't spread the risks adequately, no matter what you 
end up doing.
    Mr. Connolly. Right. I'm only establishing on the record, 
because I'm anticipating arguments in our next Congress on this 
subject matter that this would be an unprecedented role for the 
Federal Government. Not true. In fact, the Federal Government 
has been involved in the insurance market in various and sundry 
ways, including flood insurance especially, which may be a 
model--I'm not slavishly devoted to that model, but a model.
    Mr. Cohen. Right. On that point, I would like to say that 
it's likely--there's no magic bullet here. It's a combination 
of both demand and supply.
    Mr. Connolly. We understand.
    Mr. O'Brien, my final point. So OPM, other than weeping and 
gnashing its teeth over what's happening to your constituents, 
my constituents, Federal employees, and retirees in terms of 
cost, has OPM come up with any ideas in terms of how we can 
solve the problem or address the problem or make it easier for 
those constituents to avail themselves of this kind of coverage 
at an affordable price?
    Mr. O'Brien. Yeah. We do not have any proposals to bring 
before the committee right now. However, we are very interested 
and committed to working with anyone on ideas that might work. 
We appreciated some of the ideas that are shared in their 
testimony and we look forward to working with people to figure 
out what we can do moving forward.
    Mr. Connolly. Well, that's quite a piece of testimony. 
Thank you.
    Mr. Walberg. I thank the gentleman.
    I recognize myself for my 5 minutes of questioning.
    Ms. Kastrup, in your testimony, you indicated that there 
continues to be a high level of uncertainty in the long-term 
care market that affects premium rates. Can we ever expect 
long-term care insurance premiums to stabilize as more claims 
experience becomes available?
    Ms. Kastrup. Thank you. I think I also mentioned that it's 
a long projection period and any time you have a projection 
period, like a 50-year projection period, you're always going 
to add more uncertainty as you spread that out. I do think we 
have more stability and assumptions than we did in the initial 
years. Every new bit of experience, more bit of credibility 
gives us a better basis to project out.
    I don't think we'll ever have perfect--we don't have 
perfect in life insurance, and we've been doing that a lot 
longer than long-term care insurance.
    Mr. Walberg. But is there any reasonable guess when it 
might stabilize?
    Ms. Kastrup. Well, one of the issues that makes that hard 
is that care delivery has changed a lot from the initial 
policies. If you think about it, the initial policies were sold 
as nursing home insurance and the thought being no one wants to 
go to a nursing home. And, you know, assisted living facilities 
didn't even exist. Today, there's assisted living facilities. 
There's home care, and the policies cover these as well, even 
though they were maybe not even around when the policy was 
written. And so it would be hard to ever foresee future care 
delivery changes and know those perfectly, but we can get a lot 
better feel on things like mortality, mortality improvement, 
some of those assumptions.
    Mr. Walberg. That could change prediction, ultimately, of--
--
    Ms. Kastrup. There's a lot of assumptions, and some of them 
we will have more certainty on and know more about. There will 
always be some things that we won't know.
    Mr. Walberg. That's comforting for me to know, having 
bought long-term care. So thank you.
    Mr. Doughty, recently, John Hancock announced that it was 
going to discontinue selling new standalone, long-term care 
policies because there's limited demand for the product. Why is 
there limited demand for the product?
    Mr. Doughty. I think the primary reason, I think it may 
have been touched on a little bit today, is one has been this 
price increase that has sort of happened and the other has been 
a general lack of understanding that people need to actually 
think about this very important event that could happen to them 
in the future. I will say on that point, however, that when 
you--you know, all of the things that we've talked about both 
in the--in terms of prices going up in the FLTCIP but also in 
standalone retail insurance, the prices are going up because 
the costs are going up.
    And so people still have to consider these products in the 
context of what alternatives do they have? They can stay in 
that kind of a program. They can try to buy something on the 
private marketplace or they can try to fund it themselves. And, 
generally speaking, insurance, although sales have gone way 
down, insurance still can for many people provide a very 
attractive alternative in that context.
    Mr. Walberg. Any other factors, specifically for your 
company, go into making the decision----
    Mr. Doughty. The decision to stop selling?
    Mr. Walberg. The decision to discontinue selling.
    Mr. Doughty. No. But that would--the primary factor and 
really the overwhelming factor was--I mean, there's questions 
about how long you tie up capital, et cetera, in this kind of a 
product. But, really, the number one factor was really just a 
pretty simple business discussion around can you sell enough of 
it to cover the infrastructure you need for your sales teams, 
for your, you know, negotiating with each State, all those 
kinds of things.
    Mr. Walberg. Did you consider what that means for 
individuals who have purchased standalone policies?
    Mr. Doughty. Yes. And thank you for asking that question 
because I want to be very clear on that point. We have not 
stopped--we continue to be in the long-term care business. We 
have 1 million customers that we continue to provide service 
to, pay claims for. We continue to be providing insurance for 
the Federal program. And we also provide long-term care 
insurance as an accelerated benefit on their life insurance 
policies, which is an increasingly popular way to--for 
consumers to get their long-term care insurance coverage.
    Mr. Walberg. Will there be substantial premium increases 
for these individuals?
    Mr. Doughty. On our--which individuals?
    Mr. Walberg. On standalone, those that have purchased it.
    Mr. Doughty. Our in force long-term care insurance has been 
experiencing really the very same trends that we have been 
discussing as part of the Federal program. Yes.
    Mr. Walberg. Okay. Well, thank you for your testimony.
    I yield back and recognize Mr. Lynch for your 5 minutes of 
questioning.
    Mr. Lynch. Thank you, Mr. Chairman, and thank you and the 
ranking member for holding this hearing.
    I want to welcome our witnesses. Thank you for the 
important input you've had and the advice. I read through your 
papers; very, very helpful.
    This is a thorny issue, and as someone who's an advocate on 
behalf of Federal employees, this was a shocker. I do 
understand that the real issues behind this, though, I've had 
some experience sitting as a trustee on pension funds where we 
assumed years ago that would always have, you know, our target 
rate was 7 or 8 percent interest on our funds and actuarially 
we could sort of stay within those guidelines and we could 
provide the fine benefit pensions to people and we could 
project that out. Now, we're in an interest rate period where 
it's half that.
    And so, Mr. Doughty, is that the core issue for you here in 
terms of--you're trying to project over a very long period of 
time. I know you're experience rating is different. You know, 
the expectations on long-term morbidity and all of that, but 
the fact that you can't--if you're putting this money in the 
market and getting return on your investment and it's so low, 
even over a long period of time, you cannot pay the benefits. 
Is that the crux of the problem?
    Mr. Doughty. That is one of the major issues with the 
problem, not the only one. I think some of the other issues 
were raised around people living longer, being on claim longer, 
all of that kind of experience. But investment expectations 
have significantly changed because of the prolonged low-
interest rate environment, and that represents a very 
significant portion of the problem. Absolutely.
    Mr. Lynch. I notice, unlike John Hancock, a lot of other 
insurers have just gotten out of the business. They've exited. 
I think in the majority memo they said there were 100 companies 
doing this business not too long ago. And now they're down to 
12 that are doing individual policies, and maybe a similar 
amount doing group policies.
    So it's not an area where people are flocking to it. And as 
I understand it, the Federal contract that you've signed 
prevents you from getting any additional profit as a result of 
increasing the premiums. Is that correct?
    Mr. Doughty. Yes, that's correct. And--but we are quite 
happy to do that. I mean, we----
    Mr. Lynch. Well, I'm sure you weren't happy. But----
    Mr. Doughty. Well, no. But one of the reasons--one of the 
reasons you referenced, all the people that have left the 
industry, and why is that?
    Mr. Lynch. Yeah.
    Mr. Doughty. Because we've talked already about the need is 
going up.
    Mr. Lynch. Right.
    Mr. Doughty. The truth is, it's a very difficult business 
to be in. When you--John Hancock has been around for 150 years. 
We're very proud of our brand. Nobody likes to raise the price 
on customers. And I think that that's been a big challenge, so 
it's made it very difficult for people to stay in the business.
    Mr. Lynch. I understand.
    Mr. Doughty. But we negotiated not to make any additional 
fee off of the fact that we had to raise rates on these.
    Mr. Lynch. Let me thank you for that. I understand you came 
forward, your company came forward and agreed to that. I think 
that at least eliminates the possibility that, you know, that 
there's gouging going on or anything like that, since you're 
not getting any additional profit by raising the premiums. But 
it doesn't help my constituents, the Federal employees who have 
to pay these premiums. And, you know, I hear the stories of Mr. 
Thissen and it puts a human face on this.
    Let me just shift. Mr. Cohen, thank you so much. I love 
UMass Boston. They wouldn't let me in, but I jog around the 
bank along the water there. I actually did take a few courses 
there before I went to law school, so I appreciate it.
    Let me ask you. You know, Mr. Connolly raised the issue of 
flood insurance. It's intriguing. And to encourage more--there 
are some key differences here, but to encourage more insurers 
to get into this line of business, would it be helpful to have 
a government backstop like we do in the flood insurance field 
where we--you know, we actually buy our subsidy. We do provide 
a lot of assistance to families who would otherwise not be able 
to afford flood insurance.
    Mr. Cohen. Well, I mean, there are different ways to think 
about it. One is that you could imagine either the State or the 
Federal Government organizing a pool----
    Mr. Lynch. Right.
    Mr. Cohen. --among insurers where right now they have a 
premium tax that goes maybe to a guarantee fund. Maybe it goes 
to an reinsurance backstop.
    Mr. Lynch. Yeah.
    Mr. Cohen. And they all agree to a set of principles in the 
way that they operate. And if either one company, or whatever, 
has losses above that, then that's spread across the companies.
    Mr. Lynch. Okay.
    Mr. Cohen. That's one way to think about it. You know, one 
thing that I wanted to make sure that got out there, and that 
is that when you look at, for example, people who are on claim, 
you know, it is--it is true that right now, even 22 years of 
premium payments would be made up in about 5, 6 months of 
actual long-term care expenses. And so I have to say that if 
even--and even in the presence of rate increases, that means 
it's closer to 8 months.
    If you turn out to be one of the people who become disabled 
for a significant amount of time, meaning 2 to 3 years, you're 
getting a lot of benefit--a lot of benefit out of your policy. 
And I just want to make sure that that's understood here.
    Mr. Lynch. That's a good point. Thank you.
    Mr. Lynch. Mr. Chairman, I know I've exhausted my time. I 
yield back.
    Mr. Jordan. [Presiding.] I thank the gentleman for 
yielding.
    And I now recognize the gentlelady from Virginia for her 5 
minutes.
    Mrs. Comstock. Thank you, Mr. Chairman. And I thank the 
committee for holding this hearing.
    You know, when my constituents, seeing as I'm in Virginia 
and have many Federal employees also, were notified by OPM on 
July of these large premium increases, they were understandably 
concerned, and we certainly did hear a lot from them. And 
that's why I had joined folks in requesting the hearing. So I 
appreciate you all being here and taking a look at this issue.
    Walt Frances, a health economist and an expert on these 
programs, is quoted in the Washington Post as saying, quote, 
``This never should have happened. The long-term care estimate 
should have been actuarially sound and accurate, taking into 
account far more carefully both the possibility of low interest 
rates, the low rate of return on premiums invested in bonds, 
and thirdly, the average selection by persons most likely to 
need long-term care.''
    Could Mr. Doughty and Mr. O'Brien address the industry 
assumptions that were here as well as just the general 
statement? And maybe some others would like to join also, but 
why don't we start.
    Mr. Doughty. Maybe I can start. Certainly, referencing the 
quote, which I'm not that familiar with but, you know, looking 
back, we clearly got it wrong, and there's no question about 
that. And it's creating a big issue, as you referenced, for 
your constituents.
    The question is, could you have done better? And what we do 
know is that our actuaries use the information--we talked about 
this is a relatively new product. Experience is emerging. They 
use the best--they're trained to use the best estimates that 
they can at the time, set the best assumptions that they can at 
the time. And we weren't alone in doing that. You know, we 
vetted those. We had outside actuarial firms. OPM used their 
experts to look at them and I know used outside actuarial 
firms. So it is a very challenging question.
    And specifically on the interest rate one, that is a big 
driver. You know, a small--as someone mentioned earlier, a 
relatively small change in your long-term projection around 
interest rates can have a significant impact when you're 
assuming that to--you know, you're losing that revenue year 
after year after year.
    Ms. Comstock. I think you've addressed it a little here, 
but would the premium increases shorten the contract period if 
it went from like 7 to 3 years? Would that help? Is that 
something, OPM, that you're looking at?
    Mr. O'Brien. Honestly, we do not think that shortening the 
contract----
    Mr. Connolly. Please use the mic.
    Mr. O'Brien. Sorry about that.
    Honestly, we don't think that shortening the contract 
period from 7 to 3 years--we can make adjustments during the 
contract periods if we desire to. So a shorter contract period 
does not necessarily solve any problem.
    Ms. Kastrup. I would like to jump in here and say that, you 
know, when the product was first priced, it was new. It was a 
new product. So you had to look at other things, like 
population data, because there was no insured data. And you had 
to look at other products.
    I'll give an analogy. It's that time of year. College 
football, if you think about the preseason top 10 football 
polls, it's based on last year's teams. You don't really know. 
You're trying to project this year. You know, now that we're 
all into December, you have a lot more information, and that 
top 10 has changed. It's kind of a similar situation here. So 
we have a lot better data now.
    Another thing to remember is the product was priced as a 
guaranteed renewable product, meaning that premium rates can be 
reset. If it had been priced as a product with level premiums 
that couldn't change, the initial prices would have been a lot 
higher to start with.
    Mr. Cohen. One other point on that with respect to these 
actuarial assumptions, part of the challenge that the whole 
industry has faced is the issue of waiting until you get what 
you perceive to be credible experience. And so that means that 
if you've waited 10 years and all of a sudden you're now 
certain because you have all of this credible experience, 
you've got about 10 years back to make up.
    And I think one of the ways that we could improve the 
functioning of this market is to have insurers certified on an 
annual basis based on actual--what actual assumptions are 
operating in the marketplace. For example, you see what's 
happening with interest rates. You know that. You don't have to 
wait 5 years to know that this year you're earning 1 percent or 
so on.
    And so we just completed a study and asked a question about 
that, and overwhelmingly, people would prefer--if there have to 
be rate increases, people would prefer more frequent, smaller 
increases, similar to health insurance, than, you know, 
infrequent, large, you know, one-time hits.
    Ms. Comstock. Okay.
    Mr. Thissen, did you want to--did you want to comment at 
all?
    Mr. Thissen. No.
    Ms. Comstock. Okay. I see my time is about to expire. So 
thank you.
    Mr. Jordan. I thank the gentlelady for yielding back.
    We now recognize the gentleman from Virginia, Mr. Beyer.
    Mr. Beyer. Thank you, Mr. Chairman. Thanks for allowing me 
to sit in on the hearing today.
    You know, this is something that affects many of my 
constituents. I think I have more Federal employees than 
Federal retirees than any other Member of Congress. And, 
believe me, we have heard from them. The phone rang off the 
hook.
    Mr. Connolly. Wait a minute. I'm not sure about that. 
Barbara and I might compete with that.
    Mr. Beyer. Mr. Ranking Member, thank you for requesting 
this hearing.
    For example, Rebecca Cuddy shared this story of her mother 
and her unaffordable premiums. Sharon Reynolds wrote about how 
she feels completely untrapped with the unaffordable premiums. 
Jim Real asked many effective probing questions. And I sent 
several letters to OPM requesting an explanation and a 
justification for why this is happening, what we can do to fix 
it, and at least how to plan to prevent this from ever 
happening again.
    So, Mr. O'Brien, maybe Mr. Doughty, why during the interim 
actuarial reviews didn't you know that a premium hike was 
imminent and at least make this information available to the 
current enrollees? One of the big problems they had was sticker 
shock after 7 years. Or why not even perhaps interim rate 
increases at the 4- or 6-year period?
    Mr. O'Brien. That's an excellent question, and I'd like to 
kind of go through the timeline. What we had found at the end 
of the last contract cycle, there were two sets of hard facts 
we had to deal with.
    First, when we got the funded status report in June of 2014 
was when the reevaluation of long-term cost projections by John 
Hancock indicated that the long-term care--long-term costs of 
the program were higher than we were originally projected.
    Then in April, as part of the contract when they provided 
us with bids, they had done additional revisions of their 
assumptions, including revisions to their long-term projection 
of revenue returns. So we had--as I said in my testimony, we 
had the confluence of two unfortunate factors. We had higher 
long-term projected costs and we had lower long-term projected 
returns. So those two facts meant that we had a very huge 
increase coming on.
    We then had a decision we could make. We could have made a 
decision where you could have phased in the increases over 
several years, but we knew what the magnitude of those 
increases were going to be.
    So Mr. Cohen has made the thing that people would rather 
have more frequent, smaller increases, but I would put that in 
context, given the magnitude of the bad facts that we had to 
deal with, it's different to say, yes, give me smaller 
increases rather than give me 30 percent this year and then 
follow it up with 40 percent next year. Because then you have 
the situation, long-term care that people can make the 30 
percent increase and they stretch to make their budget, but 
they can't make the 40 percent increase. So they're in a 
circumstance where we have effectively made them pay additional 
money for a benefit they will not be able to take advantage, 
because they made the choice----
    Mr. Beyer. Mr. O'Brien, I think you go right to the heart 
of this too. Because what I heard from so many people was they 
signed up in 2002 or sometime along the way with really 
expectations and guarantees that this was the premium, as long 
as the benefits--in fact, in the 2002 literature, I quote, 
``Premiums have been set to remain constant for life unless you 
increase benefits.'' And then in the renewal in 2007, the--I 
think you said that somewhere along the way that they signed a 
form indicating premiums may only increase from among a group 
of whose premium is determined to be inadequate. And basically, 
no one saw that.
    In fact, the literature--the only thing that's different in 
the literature from 2002 to 2009 was you left out that line 
about premiums set to remain constant. Here, we're always 
guarding against binding arbitration hidden in the six-point 
type on the back of the contract.
    What did you do proactively to make sure that people knew 
in 2009 that they could really get hit the next time around?
    Mr. O'Brien. Well, I'm--we were criticized in hearings in 
2009, and we took those criticisms to heart. Exactly the points 
you're making, Congressman.
    Since 2009, the materials that are shared with enrollees 
have extensive information about the fact that premiums can 
increase. In fact, people positively attested they are aware of 
that. I'm happy to share with you in detail the information of 
how we've changed the materials and what information we now 
provide people since 2009 to clarify the possibility that their 
premiums will increase.
    If we can improve on that and make it even clearer, we are 
happy to do so, but we think we made extensive changes to the 
materials to make that clear.
    Mr. Beyer. Well, I confess if you talk to the people that 
you serve, they don't feel that way.
    Mr. Thissen, you had suggested perhaps a Federal long-term 
care insurance oversight board. Is that still a good idea?
    Mr. Thissen. Well, I think that there should be a public/
private, you know, partnership----
    Mr. Connolly. Turn on your microphone.
    Mr. Thissen. I'm sorry.
    I think there should be a public/private partnership that 
looks at catastrophic protection; it looks at ways to encourage 
more individuals to purchase long-term care insurance, because 
the wider we can spread the risk and the wider we can spread 
the pool, it just--it helps everybody. And then I also think 
that if we can put something together like that, we possibly 
maybe even can save some money on Medicaid, because we've paid 
some of that up front.
    Mr. Beyer. Okay. Thank you.
    Mr. Chairman, thank you. I yield back.
    Mr. Jordan. I thank the gentleman.
    Now recognize for additional round, the gentlelady from 
Virginia.
    Mrs. Comstock. I just have one more question, but what 
percent of policyholders--I'm sorry if missed it--have dropped 
their policy since this increase this summer? And what percent 
cut back on their coverage in some way?
    Mr. O'Brien. Roughly 3 percent of policyholders chose to 
drop coverage so that they took the contingent nonforfeiture 
option. Of the 172,000 people who made a decision during the 
decision period, roughly a little over half, or 93,000 of 
those, took the option whereby they reduced their benefit to 
keep their premium the same.
    Mrs. Comstock. And could you--what exactly was the reduced 
benefit?
    Mr. O'Brien. There were various options in terms of how you 
could reduce the benefit to keep the premium the same, so it 
wasn't a one-size-fits all.
    Mrs. Comstock. Okay. But half of them reduced their 
benefits?
    Mr. O'Brien. Yes.
    Mrs. Comstock. Okay. Thank you.
    Mr. Jordan. I thank the lady.
    Now recognize Mr. Connolly, the ranking member.
    Mr. Connolly. I thank the chair.
    Mr. O'Brien, I ran out of time in questioning you, but if I 
understood your response to my last question to you, it was 
that OPM has given no thought to recommendations for how to 
resolve this issue, address the issue, ameliorate the issue. 
You gave consideration to, in response to Mr. Beyer's 
questions, parceling out the premium increases and decided 
against it because you didn't think it would--that would be 
particularly helpful.
    But what about--I mean, we're listening to suggestions from 
NARFE and from Professor Cohen about some creative ways we 
could go about trying to address this problem and make it 
easier for Federal employees, Federal retirees to access this 
product. I want to give you the opportunity to respond, because 
is it really your testimony on the record that OPM hasn't given 
a thought to that?
    Mr. O'Brien. I believe what I said is that we've given----
    Mr. Connolly. Please move that closer to you.
    Mr. O'Brien. I'm sorry.
    Mr. Connolly. Thank you.
    Mr. O'Brien. Okay. I believe what I'm saying is that we do 
not have a position that I can offer in terms of 
recommendations to this committee as far as what we think we 
should do to move forward in terms of addressing the problems 
in long-term care insurance. I have found this hearing very, 
very helpful. There's a number of ideas and proposals and ways 
to deal with the challenges of the program, and we are wide 
open to working with this committee and all of these 
individuals on how we can come up with solutions.
    Mr. Connolly. But, Mr. O'Brien, it's not my purpose to play 
Torquemada here, but surely you knew about this hearing, you 
knew we were planning on this hearing. This is not a new item 
in the press. It's gotten lots of coverage. You certainly have 
had feedback from Federal employees and Federal retirees. We 
certainly have, Ms. Comstock, Mr. Beyer, and myself. And yet 
you come here emptyhanded. You're open to ideas. The hearing is 
fascinating, but we have nothing in our kit bag to offer the 
people we serve. That's your testimony?
    Mr. O'Brien. My testimony is that we do not have a proposal 
that is ready for being shared with the committee at this time. 
The options and the discussion that has been offered around 
here goes in a number of different directions. We would like to 
evaluate those possibilities and come to this committee and 
this group with a proposal that we could really play out and 
we've weighed all the pros and cons, and we have not yet done 
that.
    Mr. Connolly. Any idea of the timeline when you will do 
that?
    Mr. O'Brien. We are continuing to work. I cannot give you a 
timeline at this time, sir.
    Mr. Connolly. Well, then let me say this to you: I'm the 
ranking member of the subcommittee, and I'm going to use every 
influence I've got to make sure you are summoned back to this 
subcommittee. And at that point, we will expect specific 
proposals. You owe that to the Federal employees and retirees 
who count on this product. You're not a passive observer, just 
responds to the whims of the market with, oh, my. You have an 
obligation to the people you serve. And you have an obligation 
to this Congress to come here with concrete ideas about how to 
ameliorate and resolve this issue. And we will expect that next 
time we see you, sir.
    I yield back.
    Mr. Buck. [Presiding.] The gentleman yields back.
    Does the gentleman from Wisconsin have any questions?
    Mr. Grothman. Yeah, sure. First of all, a comment. I think 
any company could bid on this product, correct?
    Mr. O'Brien. Yes.
    Mr. Grothman. How many different companies in the country 
offer long-term care insurance? Dozens?
    Mr. O'Brien. I think about a dozen has been stated at this 
meeting.
    Mr. Grothman. About a dozen. Okay. So one would think that 
if somebody could offer this plan for less, they'd be given a 
contract in the future, and we've solved the problem. I think 
there are some underlying problems here with long-term care 
insurance I go into, and my guess is--well, I'll ask one 
question and I'll go on my soapbox again.
    Have premiums for long-term care insurance gone up in 
general across the board--like if I go to my individual 
insurance agent or anything, is this an industry-wide 
phenomena?
    Mr. Doughty. Yes. I think it's safe to say that almost 
every insurance company offering long-term care has faced the 
need to raise premiums.
    Mr. Grothman. I thought so. And I think if any Congressman 
thinks you're doing a lousy job of running their company, they 
can apply to be the chief executive officer of any long-term 
care insurance company and make a boatload of money for you 
guys if they can do a better job than the free market can do.
    But back to the last question. It is--nationwide, if I just 
go to my local insurance agent, how much can I expect my 
premiums to go up, say, every year for the last 5 years, you 
think about?
    Mr. Doughty. I think it's--it varies greatly, similar to 
this program, depending on the type of product that you've 
bought. But our--you know, and I'll just speak to John Hancock 
on the private insurance, the retail insurance that we've 
offered. And generally speaking, it's gone up by, you know, the 
same factors in similar amounts over time.
    Mr. Grothman. And that's true of your 11 competitors too, 
about?
    Mr. Doughty. Fairly similar, yes.
    Mr. Grothman. I would assume John Hancock, I mean, I would 
assume you guys know something about trying to offering 
insurance at the lowest price, don't you? And if you didn't, 
wouldn't one of your competitors undercut you and put you out 
of business?
    Mr. Doughty. Yes.
    Mr. Grothman. That's kind of something that everybody who 
graduates from high school should know by now, wouldn't you 
think?
    Mr. Doughty. I mean, I would think that one of the 
realities that the industry faces is that insurance--the cost 
of insurance as they go up have been going up, the same factors 
apply to all companies and----
    Mr. Grothman. You guys have been surprised in the amount of 
claims compared to where you all thought it was going to be 10 
years ago, right? That's the underlying problem?
    Mr. Doughty. That's correct. The amount of claims and the 
investment environment that we talked about earlier.
    Mr. Grothman. Right. And as long as people maybe continue 
to live longer, be more likely to have diseases, Alzheimer's or 
whatever, that you have to put people in long-term care, 
premiums are going to have to go up, no matter how much a 
politician wants to grandstand and be critical of you, right?
    Mr. Doughty. Premiums will go up as claims go up and the 
need and costs of long-term care goes up. That's absolutely 
right.
    We should--as someone pointed out earlier, this is a 
relatively young product. And we started with very little 
experience. So as we gather additional data, we should be able 
to get better but not perfect at predicting what those costs 
would be.
    Mr. Grothman. And if I yell at you some more and ask you to 
produce your costs, is that going to make any difference at all 
as long as more and more people continue to need long-term 
care, no matter how much I yell at you, no matter how many 
times I bring you back in this room?
    Mr. Doughty. Well, in terms of the Federal program and John 
Hancock, we obviously have an obligation to make sure that 
there are sufficient prices being charged to make sure that 
those claims can get paid in the future.
    Mr. Grothman. Right. It's not going to matter. I can't yell 
at you and say, keep coming back here until you lower your 
costs as long as more people need the insurance, right? I mean, 
you need a payout, right?
    I'm sorry for the--for what you're having to put up with 
here.
    I guess that's it.
    Mr. Cohen. There are some countervailing trends, which 
advances in health care, for example----
    Mr. Grothman. Are we keeping people alive longer, too, 
right?
    Mr. Cohen. Right. It may turn out that we're keeping people 
alive longer with less disability. I mean, that's--part of the 
uncertainty here is, frankly, it can go in both directions.
    Mr. Grothman. It can, but largely, the industry is hostage 
to the number of people who need long-term care, which they 
can't control. Right?
    Mr. Cohen. Can they--I agree that they can't control the 
number who need long-term care. I don't know if they're held 
hostage to that, but----
    Mr. Grothman. Well, assuming they're not going to go 
through bankruptcy, they're hostage to it. Okay. Thanks much.
    Mr. Buck. The gentleman yields back.
    The chair recognizes the gentleman from Virginia.
    Mr. Beyer. Thank you, Mr. Chairman, very much.
    Mr. Doughty, one of the things I've been confused--I did 
sign up for long-term care insurance. And when I got the 
notices, I show that my premium was just $325 a month, went to 
$483. And I got the three different options, which seem 
perfectly fair.
    But the letters that we were getting in our office were 
from people 10 years older than I who had signed up for 
premiums at $180, $150, and $200 that went up to $1,200, that 
were up by factors of four, five, six. And I'm trying to figure 
out why was there such a difference in the increase in the 
premiums person to person? I felt like I got a relatively soft 
landing compared to the letters that I was receiving from 
constituents, who will probably have much less ability to pay 
it than I did.
    Mr. Doughty. So there definitely were differences in the 
amount of increase, depending on things like age, the type of 
benefit, et cetera. But I would be very interested in following 
up with--back to you, because the maximum increase that was 
required was 126 percent. So I think there must be some 
confusion around--you know, if people think their rates are 
going up by five or six times. And I would love to work with 
those constituents directly, if we can, to make sure that we're 
giving them adequate information to make sure we understand 
exactly what choices they're making.
    Mr. Beyer. To be clear, unaffordability was what came home 
so hard to them. The other deal too is feeling cheated that 
they put in money for year after year after year and then all 
of a sudden it becomes unaffordable, and they have a choice of 
taking a much smaller premium that wouldn't cover them or 
getting all their money back, which doesn't do them much good 
at age 75 or 82.
    Mr. O'Brien, just one--as a retailer of 40-plus years, we 
generally like to increase our labor rates like $1 at a time 
and hope people don't notice it rather than do it all at once 
and double it or 126 percent. You might take that into 
consideration going forward.
    Mr. O'Brien. Would I had that option, it would have been 
great.
    Mr. Beyer. And I know Mr. Connolly was very firm there at 
the end, and I think what came--what I heard from that is that 
we really need a commitment from you to have to do things 
differently, lest the 2016 hearing be like the 2009 hearing, 
and we're back here again in 2023 tearing our hair out again 
and asking you questions that you have a hard time answering.
    Mr. O'Brien. I would like to avoid that as well.
    Mr. Beyer. And I--on the notion of why we couldn't have 
made--I'm still not convinced that the actuarial things--you 
talked about the perfect storm, the low interest rates. Well, 
we've known that we've got low interest rates since the Great 
Recession. Or that people are living longer, we've known that 
for a long time too.
    Was it only April of this year that we suddenly realized 
how off-balance we were, how out of sync we were with the 
premiums?
    Mr. O'Brien. Again, what we had is we had, first, a 
revaluation by John Hancock in terms of their long-term cost 
projections, which we learned about in June of 2014. And that 
was when we knew that there were going to need to be rate 
increases, but those were the higher costs. Then later, as 
there were continued refinements to the assumption, including 
the revisions to the long-term investment returns, we got the 
new premium rates in April of 2015. And that's when we had the 
situation where we had 83 percent average rate increases that 
we rolled out.
    It's a fair discussion about whether or not you would have 
done that incrementally, you know, did one increase followed by 
the other increase, and which would have been the least pain? 
The decision we made, which was--and the risk we thought we ran 
once we knew that there was going to be substantial rate 
increases needed over the period to keep the Experience Fund 
solvent into the future, which is our primary responsibility, 
is that if we had done it in what were going to be large 
increments no matter what we did, increments of 20 and 30 
percent over several years, we thought we ran the risk of 
essentially having people stretch to stay in the program, and 
then a year later when they got the next increase be unable to 
do it, and they would have been paying an additional year's 
premium that they could not afford and have gotten no benefit 
from it.
    What we decided--and it's fair to say there were other 
decisions that were possible--was to do the entire increase at 
this point based on the best information we have to take the 
fund, you know, on the best information we have into the future 
and provide these opportunities for landing spots, you know, as 
opportunities to maintain the current premium, cut your benefit 
a little and pay a little bit more premium or keep the same 
premium, if that's all you could afford. That was the decision 
we made, and I still feel it was the correct one.
    Mr. Beyer. Okay, great. Thank you.
    Mr. Chair, I yield back.
    Mr. Buck. The gentleman yields back.
    Seeing no other questions, I'd like to thank our witnesses 
for taking the time to appear before us today. If there's no 
further business, without objection, this subcommittee stands 
adjourned.
    [Whereupon, at 3:34 p.m., the subcommittee was adjourned.]






                                APPENDIX

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               Material Submitted for the Hearing Record
               
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