With the Challenges and Problems Facing the LTC Insurance Industry, Is “Self-Insuring” a Better Option?

Long-term care (LTC) insurance started in the late 1970’s and early 1980’s in response to the growing recognition of the need for financial protection against the prohibitive costs of LTC services. It was developed as a way to help individuals pay for extended LTC such as nursing home stays, assisted living and home healthcare, which were not typically covered by traditional health insurance or Medicare.

Following a period of substantial growth from the middle 1990’s to 2010, traditional LTC insurance has encountered difficulties in expanding. This includes the Federal Long Term Care Insurance Program (FLTCIP) which started in 2001. The FLTCIP was created to help federal employees and retirees, postal service employees and retirees, and active-duty members and retirees of the Uniformed Services to help deal with the future costs of LTC. The FLTCIP has not lived up to its expectations.

Although LTC insurance sales in the individual market have remained steady over the past 10 to 15 years, these sales are not significant enough to address America’s LTC funding crisis. This funding crisis has been highlighted in several articles in magazines and newspapers. The following is one article entitled “Drying Broke” from a New York Times series on the costs of LTC in November 2023:

“Repeated government efforts to create a functioning market for long-term care insurance – or to provide public alternatives – have never taken hold. Today, most insurers have stopped selling stand-alone (i.e., traditional) long-term care policies: the ones that still exist are too expensive for most people). And they have become less affordable each year, with insurers raising premiums higher and higher. Many policyholders face painful choices to pay more, pare benefits, or drop coverage altogether.”

Fifteen years ago, there were 100 insurance companies selling LTC insurance policies. Today, in 2025, there are perhaps 10 companies selling LTC insurance and most of those companies are mutual companies, owned by the policyholders.

There are two problems facing the LTC insurance industry today. The first problem is pricing. LTC insurance has limited actuarial data to use in pricing the insurance. In particular, there is a lack of information concerning which individuals and at what age go to nursing homes, or which individuals are cared for in their homes. After the 2008 financial crisis, the country entered a period of ultra-low interest rates that impacted the investment returns LTC insurance companies had on their cash reserves used to in order to make payouts to LTC policyholders incurring LTC expenses.

Another problem facing the LTC insurance industry is fragmentation. This fragmentation is between long-term care and health care. The best way to understand this fragmentation is to consider the example of an 82-year-ol with multiple chronic conditions, including heart disease, arthritis, COPD and some cognitive impairments. Most individuals would agree that this 82-year-old needs medical treatment which is provided by doctors and hospitals. But some of this needed medical care will necessitate personal care.

The problem is that the individuals and institutions who provide the medical treatment – doctors and hospitals – are not involved in the personal needs of the individual. If an individual needs personal care, the doctors and hospitals cannot tell an affected individual and/or his or her family where to get that care. That means that the individual who needs personal care (and more probably the individual’s immediate family such as an adult child) has to figure out how to get and implement personal care. In that sense, the LTC insurance industry is fragmented.

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Is “Self-Insuring” for Future LTC Needs a Beter Option Than Purchasing LTC Insurance?

With the uncertainties and financial challenges facing the LTC industry, the question becomes whether “self-insuring” for one’s future LTC needs is an alternative to purchasing LTC insurance. The answer to this question comes down to an issue of numbers. To be conservative, an individual is going to need $200,000 per year to pay for his or her LTC needs. If an individual is “actuarily average,” then the individual will need three years of LTC at a total cost of $600,000.

The question then becomes: How much in financial assets does an individual need to generate $200,000 of after-taxed income each year without dipping into their financial assets’ principle? Using a conservative after-taxed investment annualized return of 4 percent, as much as $5 million of investment assets. For federal retirees, this includes the Thrift Savings Plan, IRAs, perhaps other qualified retirement plans (like a 401(k)) from other employer-sponsored retirement plans and non-retirement brokerage accounts. For most federal retirees, this is unrealistic.

For married federal retirees, it is more complicated. The $200,000 per year recommendation for a single person is double that ($400,000) for a married couple. At least one of the spouses is a federal retiree with a CSRS or FERS annuity. Both spouses have either the TSP or a qualified retirement plan such as a 401(k), IRAs and a brokerage account. Included is a monthly Social Security benefit that at least one spouse is getting. Other factors – such as what the non-federal spouse will get in a survivor CSRS or FERS annuity and what the spouse who is not getting his or her own Social Security will receive in Social Security widow/widower benefit – must be considered as well.

To keep it simple, federal employees/retirees who are considering “self-insuring” for potential future LTC needs should plan to spend $200,000 per year per individual, or for a married employee, per spouse. How much of the $200,000 can be covered by a federal retiree’s retirement and investment income? Are there additional assets to cover any LTC cost shortfall without going broke?

A “compromise” for self-insuring future LTC expenses would be to apply for a less expensive LTC insurance policy. A less expensive LTC insurance policy would involve selecting a shorter duration period, such as two years rather than three or five years, a smaller daily benefit, $150 to $250 per day, and no inflation. Of course, this assumes a federal employee or retiree could qualify for this type of LTC insurance policy.

There is much to be said about “self-insuring” for future LTC costs. First, since one can control the money to be used for LTC costs and not have to submit claim forms to an insurance company. Second, if an individual never needs LTC, any assets set aside still belong to the individual. When the individual dies, those assets are inherited by family members. On the other hand, with an LTC insurance policy, if an individual owns an LTC insurance policy, has paid premiums over the years but dies before having a need for LTC, all premiums paid are kept by the LTC insurance company.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert

A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.

He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.