Q&A: What to do with your federal long-term care insurance

Sep 27, 2016

Federal employees and retirees have until September 30 to decide whether to accept premiums on their long-term care insurance.

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary and financial planner Carolyn McClanahan for an online discussion about the upcoming deadline.

Read Michelle's recent columns

This is a special chat to help folks trying to decide what to do about their Federal Long Term Care Insurance. 

So for today, please keep all questions related to the program. Just for today. I'm back on Thursday for general money questions.

Let's get started.

My wife and I are in our late 20's. Given family events and the recent rate hikes, we would like to lock in rates now while we're young. Is that possible? What are our options?

There will probably be many changes in the long term care industry between now and when you need it. If you have covered your basic insurance covered that is needed while you are young - disability and life insurance - and want to lock in something for long term care, consider a hybrid long term care life insurance policy.

I know you want to lock in rates. But you have some years before you need this type of insurance, unless you have some major health issues that you think will make it difficult for you to get it down the road. For now save for retirement. Save. And then save some more. Keep your budget tight so that when the time comes you have the room to buy long term care insurance should you decide that's what you want.

What amount of money does one need to have to self-insure for long term care? I am 66 years old, single, with no dependents, and no one is in need of my money when I die. I am healthy at this time, although there is some family history of dementia.

This will depend on the type of care you want to receive. The average need is about three years, but with dementia it can be a lot higher. If you are healthy, you have a higher risk of dementia because you will live longer, so you need to plan for at least five years. Genworth has a great cost of care website that will tell you the numbers based on your area. (I have no affiliation with Genworth.) https://www.genworth.com/about-us/industry-expertise/cost-of-care.html 

What level of disability is required for a subscriber to receive long-term care benefits and who decides whether a person meets that level?

There are six activities of daily living, and generally, if you lose two of those activities or experience dementia, you will qualify for benefits. The six activities are transferring, bathing, dressing, self feeding, personal hygiene, and toileting. Usually your doctor will be the one to make the determination.

I currently have a 5 year policy but the new premium is too expensive for me. Would it be more prudent to go with a lower benefit and still take the 5 yr. plan or should I opt for a larger benefit amount and take the 3 yr. plan? I do have some health issues and although I am pretty much independent now I had used a health aide twice a week a year ago after an accident.

This depends on the type of health problems you have. If it is illness such as heart disease or diabetes, you will probably be okay with the three year plan. If your "organs" are healthy, and your problems are arthritis or other muscle issues, you should try to keep the longer benefit. 

I'm trying to make future projections of costs for nursing homes and assisted living in the Boston, MA, area, and would like to know what the cost increase is per year, in general, for each living situation. I have done a lot of work in spreadsheets, and even a 1% increase or decrease in the different tables makes a big difference in what I'll need beyond the LTC payments. I'm enrolled in the Federal LTC program.

Yes, inflation plays a big factor. Inflation in health care costs can inflate higher than regular inflation for too long, as it will become unsustainable. The average rate of home care has inflated about 2% per year the last five years, and about 4% for institutional care. However, we can't predict future inflation. Genworth's site has a great cost of care calculator: https://www.genworth.com/about-us/industry-expertise/cost-of-care.html (again, I have no affiliation with any insurance company!)

Is it Life or Term?

If you are asking about the life insurance open season, the Fed life insurance is term.

Like others, I'm wondering whether to pay the increase or go with reduced benefits. Under the latter, insurance plus my pensions would amount to a little more than $10,000 a month now (more later).

This depends on many factors - what is your health, your desired aging transition (at home until you die, or will you move into a facility if home care gets too expensive or if you get dementia?), family support, etc... 

Hey guys, Carolyn and I have been talking about my doing another column on having a long term care "plan." That's what she's talking about in this answer. You see you can't make the decision about how much insurance without considering how you want to live should you need care. If you want to live at home you could get a health aid to come in and that's less than living at an Assisted living place or nursing home. Could you live with relatives, which could reduce your other costs. Who will help take care of you and watch the care you are getting? There's lots to consider.

Since you quoted my question to you in the article in Sunday's paper, I'll let you and all know what I did. As you didn't reply to the question, and I felt time was running low, I went ahead and took the option to forego future inflation increases, and keep the premium the same. All-in-all, I felt that was the best option to keep what I'd already paid in, and still gain some benefit in the event I need coverage. The 'payoff' amount would not have gained me much in time of need versus keeping the lowered coverage. What I'll do at the next inevitable raise will be figured out later! I still have comparable coverage to private plans, and pay less than a quarter what my friends are quoted, and are paying. OPM has been less than helpful with this, and reputable assistance is lacking. Feds and retirees are left to their own devices to plow thru this!

This is a great point. Even with the price increases, the value of the policy is much better compared to new policies available today.

Could you have afforded even a small inflation option?

And you still have time to change. In fact, you can still change after Sept. 30th. You have a free 30-day window to change your mind after you submit your options. 

Is the 4.25% inflation rate option above or below the average annual increase in nursing home care cost? Nationally? In the DC area

That is currently about average, however, inflation comes in fits and starts... 

I am a federal employee with a current Basic Life Insurance enrollment but want to upgrade to either Option B or C. I have a family (husband, also a federal employee, and two kids). What should I elect? Please help!! Thanks!

You can elect both options. You can get more insurance on yourself at multiples of your base salary AND you can get coverage on your spouse and dependent children. 

From OPM: "In addition to the Basic, there are three forms of Optional insurance you can elect. You must have Basic insurance in order to elect any of the options. "

https://www.opm.gov/healthcare-insurance/life-insurance/

I'm 72 and single without close relatives. I've been part of the Federal LTC program since it started. My premium is increasing $100 per month for current coverage (3-year benefit period with 5% inflation protection). My strategy is to keep my current benefit level for this 7-year contract, then at age 79 consider reducing the inflation protection if another big increase hits. I can absorb this hit (big gulp), but probably will not be able to do it again. Reasonable strategy? Also, I find it ironic that we long-term policy holders are asked to pay back the deficit (in the premium increase) of the last contract rather than having John Hancock (who miscalculated) take the loss. At least that was one explanation I read. If John Hancock made a bad deal - why are isn't John Hancock taking the hit for their bad underwriting judgement? It was not clear to me when I took the policy out that the long term effects of aging were not included in the initial premium. This seems to be priced more as a term life insurance policy rather than a fixed premium policy. I don't think that was made clear to us when we signed up. Thank you for opening this question - although really late in the decision cycle for Feds. Mary Ellen McMillin

This is a very good strategy. 

The insurers hit "the perfect storm" - sustained low interest rates, improved and more expensive healthcare, higher longevity, and people not giving up their policies. The actuaries can only do a best effort at predicting the future. Unfortunately, insurance companies have to make a profit to survive (although I would argue that we should have non-profit companies entering the market - at least that would decrease the amount that insureds are paying to the profit line.) Based on the current perfect storm, they had to raise rates or they would go out of business.

Of course the information provided by the government is confusing. For example, if I keep current coverage and pay the 80%+ premium increase my DBA is $255.26/day. However, if I reduce the ACIO my DBA goes to $259.54/day. Help please this is confusing.

Yes, this can be confusing. The benefit goes up initially for the lower premium is to help entice you to choose the lower inflation rate. But if you do the numbers on the new inflation rate, you quickly make it up with the old inflation rate. In general, if you are at the point you will use the policy sooner rather than later, it doesn't really pay to take the higher inflation rate. If it will be a long time before you may use the policy, it is best to keep the higher inflation rate if you can afford it. 

My wife and I have been paying premiums for federal LTC insurance for eight years, and our premiums will more than double if we keep the same plan. We're willing to decrease our benefits in order to keep premiums manageable, but we're afraid the same kind of premium hike might happen again in another seven years. We're both in our forties, so repeated premium hikes in the coming decades are a real concern. We have a quote for a private plan with lower premiums but also lower benefits. The agent told us the premiums will likely rise along with inflation. We'd be fine with that, but wonder if we can trust the company to not have the kind of big rate hikes we're now seeing in the federal plan. How stable do you think private plans are compared to the federal plan? We're thinking of staying with the federal plan for another seven years and switching to a private plan then if we see another huge rate hike from the federal LTC plan. But would the rates for a private plan be substantially higher if we're then in our 50s, and perhaps with worse health?

Good question! Basically, the resets bring back the stability, and the federal plan was underpriced from the beginning, so you are at a draw there. The good news - interest rates can't go any lower, and they have priced lower interest rates into the updated policy premiums, so this argues that prices will be more stable in the future. My inclination is to stay with the federal plan, and since you are young, buy the highest benefit and inflation rate you can afford. This will compound significantly over the next seven years, and you can than cut back at the next premium review if prices do go up.

We enrolled at age 48. At age 62, it feels as if the increase to our premium is subsidizing prior years underfunded costs. We are being penalized for getting the insurance at a young age. What is our alternative? Any other companies out there that would be a more reasonable cost with similar benefit? Thank you.

Actually, probably not. The benefits are still very good compared to private plans. As stated in a previous answer, because interest rates really can't go lower and this is priced in the new premiums, we would expect the premiums to stabilize going forward.

Boy, you've guys got some good questions! And you're asking the right questions. 

 

In reading your column on Sunday, September 25, it stated that you would have additional information and possible guidance. Can you tell me where I may read your response as well as questions by others? Thank you

My next column comes out later this evening online and Wed. for print. But really, much of what's being said will be covered in the column. Honestly, I have such limited space in print you're getting more meat right here! 

This is why I'm doing the chat. 

I’m wondering if this is the time to bail out of FLTCIP. I have the “paid-up” coverage option and have a considerable amount of premiums paid to date. I’m concerned that in seven years there will be another large increase but maybe not enough to trigger the paid-up coverage. Then my choices will be to pay the increase, take another reduction in benefits, or drop the program and lose everything. LTC seems to be a failed business model; what happens in seven years if no one bids on the contracts? Seems like this might be a good time to take the money and run and put what would have been paid in premiums to other use.

This really depends on your age. If you are mid 50's or above, I definitely would not let it go. Because these new premiums are based on very low interest rates, we expect premiums to stabilize. 

FEGLI also has the September 30, 2016 deadline - is taking life insurance through FEGLI as opposed to private life insurance companies a good idea? Is it typically equal coverage for the same price or is one a better deal than the other?

Definitely check the private market. If you have some health issues the federal life insurance may be your best option. Also keep in mind your life insurance thu your job may not be portable should you leave your job. 

Just wanted to chime in about long term care costs and dementia. My mother was diagnosed with Alzheimer's when she was 80. At 85, she entered an assisted living facility. She is 97 and still in Assisted Living (so, 12 years with apparently another 40 still in her). Her care currently costs $192 per day. Plus another $200 per month in diapers. She also has drug costs, part d and medicare part b premiums, and deductibles. her care is partly funded through an immediate annuity we had purchased. but I wish she had long term care insurance.

This is so tough. And that is the problem with planning for long term care - it is hard to tell just how long you are going to need it. In general, people who are very healthy have a higher risk of dementia because they will live longer, so they should get policies with longer benefits and higher inflation. People with significant health issues can opt for shorter term plans.  

Thanks for sharing your story!

Good afternoon. Rather than paying a 123% premium hike, I am considering paying the same rate I have been and getting only a 2.2% inflation protection option, 5 year benefit.....Does this sound reasonable. I am 62 years old and got the insurance at age 48, when it was first offered. Thank you.

If you are still healthy, I would opt for the higher inflation rate. We expect rates to stabilize because the new rates are based on the current very low interest rates and interest rates can't really get any lower. When the premiums are revisited in seven years, you can opt for the lower inflation at that time.

What age do you generally recommend someone obtain a long-term care policy?

Depends on your health. If you have an unhealthy lifestyle, you need to get it as soon as possible because you may become uninsurable. If you are very healthy, most people wait until their mid 50's to make the purchase. Caveat - you can become uninsurable at any time, and if you do, you will wish you had purchased it.

One option if you want to wait and take the risk you can still get it would be to save for the insurance. As part of your savings, include a line item for future insurance costs. Just a thought.

Spouse and I are in our fifties and considering LTCI. How can we be sure the companies offering LTCI now will be around when we could possibly need it in 20-30 years, since they are so many financial challenges for those companies now?

This is a big conundrum. One consideration is to buy a hybrid long term care/life policy, especially if you can pay a lump sum to fund it. They will be required to put away the reserves to fund the benefit in the future.

I do have to make a decision this week on what option to take for my LTC policy. However, I'm the FPO plan and will be offered an increase in daily rate and increased premium which I can decline. You mentioned have more discussions about LTC insurance going forward. Do you have any idea when your next column or Online Q&A like today will occur?

My next column on this runs later this evening online and tomorrow for print. But as I wrote to another reader, I can't possibly cover as much as Carolyn is covering in this chat!!! My space is too limited, so I have to take little chunks to cover this topic. But I think Carolyn, who by the way does not sell long-term care insurance, is down great job answering many of the questions folks have. 

one factor in favor of a private plan is that rate increases are regulated by the state you live in. If my long term care insurer wants to increase its annual rate by more than 15%, it has to get permission from my state. It did get that permission once. I have had that insurance for about 10 years now. I got it before there was federal long term care insurance. when the federal came in to existence, I compared, and my rate was significantly cheaper and the benefit was significantly greater (I am trying to insure myself in case I need extended length of time for care as dementia is definitely an issue in my family).

Great point. Much of it depends on when you bought it, the company, and your age at which you bought it, and your health.  Remember, the federal policy was "open enrollment" which means anyone can buy it who is a federal employee, even if they are unhealthy. For healthy people, it is often cheaper to go through underwriting and buy a private policy.

I am 62, healthy (knock-on-wood), and debating about keeping my $200-a-day, 5-year premium as is or downsizing the policy a bit. I am in the D.C. area. The rate hike will be about $70 per month if I keep the same benefits. In addition, I originally did not opt in to inflation protection, so I am also wondering how that fits into the overall picture--and whether to make a change on that piece now, or when I might need to use the policy. Beyond that, I can only say that I would almost certainly want to stay in my own home if at all possible. Thanks!

I would definitely get the inflation protection, especially since you want to stay in your own home...

My premium will increase from $234 to $571 if I keep my current coverage (unlimited benefit period, 5% acio). Thinking about dropping to 5 years benefit period, but people can need long-term care for a very long time, and I'm terrified of the possibility of running out of money. Alternative is to stick with unlimited but move to 4% acio, for a premium of $380. Still pretty high! I do have decent savings, but I make a good salary and wonder if it's best to bite the bullet with the unlimited premium. Or is that over coverage? I am 55 yo, no kids, in a long-term relationship with a financially secure partner. So hard to know how to think through all of this!

If you are healthy, and have a high risk of longevity, you could need the longer term coverage. However, the risk of needing the policy over five years is not really high. Opting for the highest inflation rate with the five years should provide the coverage you need. Especially with no dependents, there is no reason you couldn't spend down your assets and use your pension to self insure the rest - as long as you are willing to take that risk.

If I've only paid $11,000 into my LTC plan, should I go ahead and pay the higher premium and keep what I have? I can afford it just don't know what the next time will be like but wait and see and then decide what to do.

A lot of this depends on your age. If you are younger, pay the higher premium and keep the higher benefit. If you are older, you may be able to reduce the inflation option.

What advice do you have as far as coverage amount is concerned do you have for a single African American healthy woman with no children? Thanks so much!

This depends on your health, where you live, and your assets. If you have savings and a good pension and don't care about leaving an inheritance to someone, you could probably self fund. If you don't have the resources to self fund, and are healthy, try to buy at least three years of coverage based on the current prices of care in your area today. You can find the cost of care at Genworth: https://www.genworth.com/about-us/industry-expertise/cost-of-care.html

I currently have FLTCIP coverage of $265/day - 4.0% ACIO - and "Unlimited" LTB. I am considering changing the LTB from unlimited to 5 years with the daily benefit and ACIO remaining unchanged. This will result in a premium reduction of $90.21/mo ($321.77 to $231.56). Is this a good idea?

Based on statistics, you can get away with this. However, if you have very good health and will live a long time, you have a higher risk of dementia and need care for a longer period. Given that, the chance that you will need care longer than five years is not high, and if you have a pension and savings, you should be able to cover it.

Is there a guarantee that there will be Federal Long Term Care insurance when I might need it several decades in the future? John Hancock was the only company bidding this time and the contract is only good for seven years. What happens 7, 14, 21, or 28 years from now?

There is a requirement that companies put aside the resources to fund current policy holders. If the company is sold, the company who buys it picks up where the old company left off. This is why the price increases are happening now. This is the problem with any insurance and is another reason we need to make certain they are tightly regulated and are doing what is needed to stay solvent.

Is it generally cheaper than ordinary Term Insurance? What if I have High Blood Pressure and Diabetes Type 2?

If you have major health issues that might prevent you from getting the life insurance you need or some life insurance, get some during this rare open season. Get it and then still shop around. If you can get a private policy for less, you can always cancel the federal life insurance. But with your health issues, the fed policy might be your only option or your only affordable option. Also make sure you "need" it. Do you have dependents, folks depending on your income? If so, get some term life insurance. 

Are there other ways of achieving a pool of money for Long Term Health vice buying insurance?

Consider the use of a hybrid long term care/life insurance policy. Given that, the best way to prepare for your long term care needs is to create a long term care plan that spells out the logistics of your living transitions, financial care taking transitions, driving transitions, and health care decision making. For example, people without advanced directives incur about $18,000 extra in the last year of life in OUT OF POCKET costs (not including how much more Medicare pays for that too!)

There's been an exodus of providers getting out of the business... The nature of the LTC product seems to lend poorly to business models. Will the product change first or will we see more businesses drop this type of offering?

What we really need is new and innovative approaches to how we provide long term care. With new technology, alternative living situations, and better awareness, we can do much to decrease the actual cost of long term care.

I couldn't agree more. Just given the questions in this chat, this is a HUGE issue and one that isn't getting the attention it should. Just look at the election? Long term care hasn't really been talked about and debated. But we ALL are going to pay if we don't find a way to spread this cost. Medicaid can only handle so much. Because, as you may or may not know, Medicare in general does not cover long term care. 

Are there really any private sector alternatives left? The WSJ a while back ran a story about how many private long-term plans were closing up because they, too, had guessed wrong on the actuarials. So, in the end we are stuck?

There are plenty of private sector alternatives left and the pricing now considers low interest rates, so rates should be more stable in the future. Insurance benefits and prices swing like a pendulum - benefits are rich and cheap and underpriced but the pendulum swings back and they cut benefits and raise rates. And then the cycle starts over...

As a GenXr, long term care insurance is the worst sort of scam along with whole life and annuities. All the evidence one needs is, "ask a boomer about long term care insurance" and you'll hear a litany of high and ever-increasing premiums, reduced coverage, or worse, your family having to fight, battle and sue your insurance company for the coverage you were guaranteed just at the time you need it most - when you need a nursing home. The best one can do is save as much as possible for retirement. If the worst case scenario occurs once you're elderly and things start to go south then I don't know, pick up a drinking habit or enjoy all that bacon you've been denying yourself all these years to hasten the inevitable because long-term care insurance isn't an option. And yes, thank the Federal Reserve while you're at it. 0% interest rates as a permanent bail-out of big banks has pretty much cratered insurance companies which has a lot to do with the long term care formula of more-premiums to less-to-no coverage.

Amen!!! I have a lot to say about this, but that would take about an hour.

So love that you are venting. That's good for the soul. But I have heard from many folks who have the insurance or relatives had the insurance and they consider is a Godsend. But what you communicate is why we need a nationwide plan to deal with this issue.

Is some or lower coverage better than no coverage?

Absolutely. Nursing homes will take you if they know you can pay for a couple years of care and contrary to popular belief, they find a way to get you paid for if you run out of money.

As a single parent with an only adult child who has moved a coupla thousand miles away and who has started his own family, I've bitten the bullet and modified the LTC parameters [lower %] to maintain coverage. Believe the increase of $40 per pay period is worth the investment in the long term [no pun intended]. Totally understand the quandary for others that cannot withstand the financial impact [pun intended].... Thanks for all you do....

Glad you are sticking with it! Smart choice.

my premiums doubled but I still think I'm getting a deal, bad news is now it's twice as much as my DC tax credit whereas before it was exactly that amount, I think people should check out designing their own policy, I did mine in 2007.

This works great if you are insurable and can access the private market.

I'm a federal employee who purchased LTC insurance when it was first offered. I can only speak for the agency where I work of course, but I distinctly remember that it was emphasized over and over that the contract was 7 years long, and we shouldn't have any expectations as to what the premiums would be when the contract was renewed or a new provider was chosen by OPM. So, I can't really feel too sorry for my fellow federal workers who somehow thought that their premiums would never go up. The only promise that OPM made was that the premiums would not go up DURING THE TERM OF THE SEVEN-YEAR CONTRACT. All bets were off after that. Having said that, I have chosen to renew my LTC insurance with a slightly lower premium after discussing it with my financial advisor, who still thinks that the federal program is a good choice, especially compared with what a broker could get me on the individual plan market.

Thanks for your perspective. 

I get why it shocked people. Because the pricing was way off. But, as you point out, this and just about everything else with our money depends on so many factors, including knowing the unknowable, which is when we will get sick or die!

Why would only three years be necessary for someone with heart disease or diabetes?

Because they are more likely to die sooner. The average  long term care need is three years, and someone is bringing down that average.

There are three main reasons why I decided against purchasing a long-term care product: 1. Uncertainty regarding future premium increases and by how much 2. Uncertainty as to the safety of the investment due to bankruptcy or closure of the LTC provider 3. Lack of control over the investment. In lieu of LTC insurance, I have opted instead to use a Health Savings Account to accumulate and control my own savings to be used for long-term care (i.e., I pay for expenses out of pocket while working rather than tap HAS funds). My question: What is your response to the concerns I listed above and the approach of using an HAS instead of LTC insurance? Thanks

If you are doing a good job of saving, it is a reasonable plan. The problem comes if you need care much longer than you've saved for. For example, with the average premium increase of 83%, if someone accesses the full benefit in 20 years, the annual rate of return will be about 15% per year.

I know. We couldn't get to all your questions. Or I should say, Carolyn couldn't. I only piggybacked when I could offer some insight. 

At any rate, Carolyn has agreed to answer some leftover questions online. I'll pull them together ship t hem to her and hopefully we'll get them online by this evening or tomorrow morning. Just check on washingtonpost.com

Thank you for joining me for this special chat. I'm be back on Thursday to discuss my book club selection for the month. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday and is carried in more than 120 newspapers.

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Carolyn McClanahan
Carolyn McClanahan, M.D. CFP® is a physician turned fee-only financial planner. In addition to her financial planning practice, she speaks and writes on the intersections of health and personal finance, including aging, health care costs and long-term care issues.
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