Posted on Friday, 10th June 2016 by

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I applied for Long Term care insurance when it was first offered as a benefit in December of 2002. Our premiums for the Future Purchase Option (FPO) at that time were reasonable for the 5 years of coverage we elected; $73.57 monthly for my wife and I.  My premium for the Future Purchase Option was 37.98 and Mary’s $35.59.

I was 52 at the time. We didn’t select the automatic compound inflation adjustments and with the future purchase option our 5 years of coverage provided a total benefit of $228,125 or $125 per day. Currently our premiums are $149.26 monthly, $77.17 for me and $72.09 for my wife,  just over a 100% increase from our initial 2003 premiums.  Our daily benefit increased to $203 per day, a 39% increase  in the daily coverage amount for a 100% premium increase!

Originally the providers were John Hancock Life and Insurance Company and Metropolitan Life. Now John Hancock is the sole provider.  Many insurance companies aren’t issuing new policies anymore and there are few providers to choose from today. Plus the prices have increased dramatically for many.

The Federal Long Term Care Insurance Program (FLTCIP) costs increase significantly if you opt for the compounded inflation coverage, the 4% or 5% Automatic Compound Inflation Option (ACIO).  Every two years under the FPO plan I receive a letter offering to either increase our premium and daily benefit amount, reject the offer and maintain current coverage, or change to an (ACIO) option. Last October we could have changed to Option 3, the 4% (ACIO) for a total monthly premium of $421.33 with a lower daily benefit or the 5% (ACIO) for $558. That is almost 4 times what we are paying now!

Thankfully we haven’t changed coverage to the ACIO options and I can decline future purchase offers 3 times without having to complete a full underwriting application to receive future FPO increases. I haven’t declined a FPO increase yet.

Many federal employees selected the (ACIO) options and are now pondering what to do with their coverage since you can’t elect the (FPO) plan that I have once you leave it.  It states in their letter that,  “You will no longer receive FPO offers” once you change to ACIO.

If you have Option 1, the Future Purchase Option (FPO), and your health is failing you can opt for the inflation adjusted rates without providing evidence of your good health concurrent with the next premium increase.  At any other time you would have to provide verification of your health to make this change.

We intend to keep our current coverage unless the premiums down the road skyrocket and if my health starts to decline I can change to one of the ACIO options if needed. With the FLTCIP plan you can call to change your coverage at any time, there number is 1-800-582-3337 or visit their online site at www.LTCFEDS.com. However, to increase coverage you will have to submit an underwriting application confirming your good health except as noted above. If your premiums become too high you can always reduce coverage by changing from a 5 year to a 3 year policy or reduce your Daily Benefit Amount (DBA).  This can be done anytime.

The majority of insurers have dramatically increased premiums for Long Term Care and in some states premiums have increased over 50% recently. In Pennsylvania four insurers requested permission from Pennsylvania insurance regulators to increase premiums for current policies.  MetLife, according to the Kiplinger’s Retirement Report, “requested rate increases of 43% to 60%, and the insurance department approved a 20% increase.”  Other providers requested increases of up to 88%.

If I changed to Option Four with a 5 year policy and 5% ACIO coverage for my wife and I, our combined annual premium would be $6,696! Currently we pay $1,791 annually for FPO Option 1.  In the private sector many are paying  thousands more annually and getting hit with huge premium increases.

According to Genworth’s report titled Annual Median Cost of Long Term Care,” the following median annual long-term rates apply:

  • Homemaker Care $45,760 ($125/day)
  • Home Health Aide $46,332 ($127/day)
  • Adult Day Care $17,680 ($49/ day)
  • Assisted Living $43,539 ($119/day)
  • Nursing Home
    • Semi-Private Room $82,125 ($225/day)
    • Private Room $92,378 ($253.day)

The duration and level of long-term care according to LongTermCare.gov varies from person to person and often changes over time. They list the following average need:

  • Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years
  • Women need care longer (3.7 years) than men (2.2 years)
  • One-third of today’s 65 year-olds may never need long-term care support, but 20 percent will need it for longer than 5 years

These statistics highlight the high cost of this insurance and the need to have long-term care coverage. Personally, my concerns are twofold. I want my wife and I to have dignified care in a professional, clean, and caring facility and at the same time I don’t want to bankrupt our estate in the process. These high costs can easily drain your Thrift Savings Plan (TSP), other retirement and bank accounts, and investments. Also, I don’t want to burden my wife or our children if I or both of us need long-term health care services. The physical and mental strain that a healthy spouse, partner or family member faces when long-term care is needed is monumental and if you have a long-term policy it helps to reduce at least the financial stress to a manageable level.  You won’t have to worry about where the money is coming from.

Federal employees and annuitants that are confronted with large premium increases should contact FLTCIP to discuss their options for reducing costs. Before canceling your policy check for ways to reduce costs and explore other coverage options.

Some private sector providers are combining insurance policies with a long-term care rider and others offer deferred-income annuities if appropriate for your situation.  Lincoln Financial offers a Money Guard policy that combines both.  According to Lincoln Financial, “Unlike traditional long-term care insurance, your policy costs are set at issue and will never increase. Your policy provides benefits, even if you never need care, provided all planned premiums are paid.”

My wife and I have sufficient coverage for the majority of our projected expenses for a 5 year period and will use personal savings to cover any shortfall. Currently my coverage is $203 per day for a total of $370,475 over a 5 year period. My wife has the same coverage. Per the Annual Median Cost of Long Term Care Report mentioned earlier in this article I would have sufficient coverage for all but the semi-private and private nursing home room. A semi-private average cost is $225 a day of which I or my estate would have to chip in $23 a day and an additional $50 a day for a private room.  Call the FLTCIP and ask them for the average cost of coverage for your area.  They maintain a database of average costs for all major metropolitan areas. For Pittsburgh, where I live, the average cost for a nursing home was $283 in 2013 and this would require me to increase my daily benefit amount (DBA) or contribute more from our savings to cover the costs over my current DBA coverage.

You also have to cover the required waiting period of 90 days and that alone will require a considerable cash outlay. For example, if you enter a nursing home and are placed in a semi-private room the average cost today is $6,843 a month, the first three months are on you. You will need $20,531 to cover this waiting period. After that your long-term insurance will pay the bills up to your insured daily amount. You will have to pick up the tab for any charges above that.  You only need to satisfy the 90 day waiting period once during your lifetime. If you stay at an assisted living facility first for 30 days and then enter a nursing home, you would only have to wait 60 days since you already had 30 days at an assisted living facility according to the FLTCIP customer service representative that I talked to this week.

Many believe that Medicare and your FEHB plan will cover long-term care costs. Medicare states on page 72 of their guide, “Medicare and most health insurance plans, including Medicare Supplement Insurance (Medigap) policies, don’t pay for this type of care.”  If you don’t want to burden your family when you need these services research your long-term care options NOW. The younger you are when you apply the lower your monthly premium, start early and research your options.

Request a Retirement Benefits Summary & Analysis. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections.

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Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

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