*Federal Long Term Care Insurance Program May 2009 FLTCIP* New Contract

2 FLTCIP History Contract Award FLTCIP is Strengthened New Plan Design Premium Increase Landing Spots Premiums for New Plan Design Transition Our Customers Todays Topics

3 FLTCIP History Began in 2002 One Open Season held in July – December 2002 Since then, continuously open with full underwriting; new employees and spouses have 60 days to apply with abbreviated underwriting Eligible to apply (with underwriting): Federal and U.S. Postal Service employees, annuitants and compensationers Active and retired members of the uniformed services Spouses and adult children of all groups; parents, parents-in-law, and stepparents of employee groups About 224,000 current enrollees Insurance provided by John Hancock Insurance Company and Metropolitan Life Insurance Company (administered by Long Term Care Partners) Present consortium being dissolved

4 Contract Award Request for Proposals (RFP) issued August 25, 2008 OPM chose John Hancock Life & Health Insurance Company as sole insurer for FLTCIPs second 7-year contract term Original 7-year contract expired April 30, 2009 OPM extended current contract for up to 10 months to allow for an orderly transition Long Term Care Partners continues as administrator

5 FLTCIP is Strengthened Updated pricing that better reflects current projected experience and improves premium sustainability Improved overall FLTCIP funded status New plan design features that offer more choices and greater coverage

6 New Plan Design - Features Enhancements to several benefits Elimination of a few less popular features New benefit options anticipated to be available for new applicants sometime this Fall Current benefit plan will be discontinued for new applicants Current enrollees will also have the opportunity this Fall to change to the new benefit options

7 New Plan Design – Benefit Changes BenefitCurrent ProgramNew Program Home Health Care Reimbursement Up to 75% of daily benefit amount Up to 100% of daily benefit amount Benefit Period 3 year, 5 year and unlimited2 yr, 3 yr, 5 yr and unlimited Future Purchase Option Amount of Increase based on Medical Care CPI Three strikes rule Limited ability to change to ACI without underwriting Amount of Increase based on Urban CPI No three strikes rule Underwriting required to change to ACI Daily Benefit Amounts $50 to $300, available in $25 increments $100 to $450, available in $50 increments Informal Care by Family Members Up to 365 days in enrollees lifetime Up to 500 days in enrollees lifetime

8 New Plan Design – Benefit Changes BenefitCurrent ProgramNew Program Waiting Period Choice of 30 or 90 service days90 calendar days Bed Reservations 30 days60 days Weekly Benefit Amount Offered as an option (only 12% current enrollees have it, program-to-date) Not offered Facilities-Only Plan Offered as an option (only 11% current enrollees have it, program-to-date) Not offered

9 Premium Increase Premium increase of up to 25% for current enrollees with Automatic Compound Inflation (ACI) feature Amount of increase depends on age at purchase No premium increase for enrollees who purchased at age 70 or above No premium increase for current enrollees with Future Purchase Option Current enrollees will receive options to avoid premium increase Current enrollees will have sufficient time to weigh options and make decisions before increases take effect

10 Premium Increase - Current Enrollees* Effective on/about 1/1/10 Age at Purchase Automatic Compound Inflation (ACI) Future Purchase Option (FPO) 65 and younger 25% increase NO Increase 6620% 6715% 6810% 695% 70 and olderNO Increase *There will be landing spots so current enrollees can avoid these premium increases, by changing their current benefits.

11 Premium Increase FLTCIP faced projected funding shortfall for current enrollees We must ensure premiums reflect cost of benefits provided, as required by FLTCIP law Actual and projected Program experience differs from assumptions used when original premiums were set Projections of funded status are extremely sensitive to certain assumptions about future program experience, such as enrollee persistency and investment return OPM used actuarial consultant to independently price FLTCIP products and assist with price evaluation of offers received. Consultant confirmed premium increase is necessary and appropriate.

12 Premium Increase First premium increase since Program began seven years ago Consistent with increases in other public sector long term care insurance programs and long term care insurance industry as a whole Most LTC insurance carriers have either implemented or announced premium increases in last few years No plans today to change premiums again, either during this contract term or in 2016 after next contract term begins Premium rates may change in the future if necessary to reflect the cost of benefits provided We will continually monitor program experience to ensure premium value and adequacy

13 Premium Increase Why ACI Enrollees but not FPO Enrollees Enrollees with automatic compound inflation (ACI) option receive 5% compounded increase in benefits each year, but premiums do not go up because of that benefit increase ACI enrollees pre-fund their future benefit increases Changes in assumptions have a particularly acute effect on amount of funds needed in advance to support expected level of future benefits FPO premiums are designed to increase every 2 years along with increase in benefits Because FPO benefit does not require same degree of pre- funding, the premium increase does not apply to enrollees with FPO

14 Landing Spots Current enrollees will be given the opportunity to choose to keep premium approximately the same as they pay now by changing their current benefits OPM is currently negotiating specifics with John Hancock Possibilities may include changes in Daily Benefit Amount and/or rate of inflation increases

15 Premiums for New Plan Design Pricing for new plan design is consistent with the revised pricing for the current plan Premiums for new plan design are higher than the revised premiums for the current plan due to benefit enhancements

16 Transition John Hancock will send current enrollees personalized information this Fall that details choices: Keep current benefits, subject to rate increases that may apply; Keep premiums approximately the same as they pay now by making changes to current benefits; and/or Take advantage of one-time opportunity to switch to new benefit options without underwriting Effective on/about January 1, 2010: Premium increases for enrollees with ACI who purchased under age 70 and choose to keep their current benefits Benefit changes

17 Our Customers Are Talking Upset about the premium increases Mistakenly believe we guaranteed rates under the first contract and we are breaking our promises to them Misunderstanding about what level for life means for automatic compound inflation ing, calling, commenting on the Web to voice their displeasure

18 We Are Listening We did not expect a future premium increase when the program began so we did not emphasize that possibility in the educational materials Posting Frequently Asked Questions Staffing call center for complaints/questions Answering questions and meeting with the media, NARFE, unions Working with John Hancock on a mailing soon to current enrollees to explain whats happening and outline the schedule of events Rewriting program materials

19 Questions?