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Federal Long-Term Care Insurance Benefit Changes

Premium hikes and changes coming to the Federal Employee Long-Term Care Plan.

If you are a Federal Employee, you’ve heard about upcoming changes to the Federal Long-Term Care Insurance Program (FLTCIP) by now. The Office of Personnel Management (OPM) announced premium increases that will range from 0-126% of current premium, with the average increase for participants calculated at 83%. There are currently more than 274,000 employees enrolled in the program that is offered thru John Hancock. Enrollees will have a decision period ending on Sept 30th to make changes to their coverage plan - new premiums will take effect Nov 1, 2016.

Why is this happening?

It is important to remember that while access to the Federal LTC program is offered as part of your benefits package, NONE of the premium cost is paid for by the government, and policies are underwritten - meaning you must qualify from a health standpoint - making it similar to any other privately offered LTC policy. 

Over the past few years many large insurance companies have exited the LTC business and those that remain have raised premiums in order to stay viable. This can be attributed to longer life expectancies, lower rates of return on premiums invested by insurers (due to low interest rates), and the rising cost of care. Insurers set premiums too low as they underestimated how long people would live and overestimated how many people would drop their plans before collecting benefits. 

The federal plan long-term care plan is required to be put to market every 7 years, while that occurred this year, John Hancock was the only bidder on the piece of business during the course of a 7 month period. Their proposal included a broad increase to premiums based upon the factors discussed above.

What does this mean?

Most enrollees will see an increase starting Nov 1st 2016. However, according to OPM, enrollees will have a few options to select from and at least one will allow reducing coverage to maintain your current premium. You must elect your choice by Sept 30th or face the automatic premium increase. It’s estimated all but 10,000 of the current 274,000 enrollees will see an increase. 

-Those not impacted include: 

  • enrollees who applied for coverage on or after August 1, 2015
  • enrollees whose age at purchase was 80 years or older
  • enrollees currently enrolled in the FLTCIP’s Alternative Insurance Plan
  • enrollees who are currently eligible for benefits or awaiting a decision on a pending claim.

Your choices within FLTCIP include:

  • Premium neutral option to fully offset the premium increase, and thus reducing your coverage.
  • Partial increase, roughly half the total premium increase, this will also lower the amount of coverage you have.
  • Full premium increase thus retaining the current amount of coverage.

There is also another provision built into the plan called the Paid-up provision or ‘contingent benefit upon lapse’ which allows enrollees to stop paying premiums with a cut in benefits. You will be able to keep the current daily benefit amount, but reduce maximum lifetime benefit to equal total premiums paid thru Nov 1, 2016 or 30 times the current daily benefit, whichever is greater. 

What should you do?

First, evaluate your need for Long-Term Care Insurance. Nursing home costs vary around the country, if you have a specific state in mind where you would like to retire or receive care, research the current costs for that state. If you do not have insurance would your assets be able to cover these costs for you and your spouse? If you are unmarried, will your assets and children be able to pay for these costs.

Assess your current & expected future level of assets, and projected income stream. LTC coverage will pay for the cost of care and protect your assets; it also can provide financial confidence for your family by planning for care in the future. The downside is the high cost and the potential for not recovering any benefit from your investment.

Understanding your options

Now that you understand if and how much coverage you may need, you also have a choice as to what type of policy fits best for you.

-Traditional Long-Term Care Insurance - Compare the cost of the choices FLTCIP is offering, you should also compare with individual policy quotes from several different companies. While traditional LTC policies pay out once care is needed, the insurance company can raise premiums, and should you pass away before needing care there is no payout.

 -Combination products - Insurance companies have started offering policies that combine life and long-term care insurance. The design offers access to insurance for the cost of care, and, if not needed the policy will pay out to your loved ones as a life insurance death benefit. The appeal here is a definite payout and competitive cost for the benefits received. This coverage is sold individually in the private marketplace. Some of the features include:

  • Your premiums cannot change, and you can pay for a determined number of years.
  • If you change your mind or decide later that you do not need care, you can get all or most of your money back
  • Should you pass away before needing long-term care, your beneficiaries would receive a death benefit.

What's your plan for LTC insurance? 


*This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. You may also visit your state’s insurance department for more information