What federal employees need to consider when evaluating their Long-Term Care options
Edward A. Zurndorfer
The statistics are there. According to the Administration for Community Living, 70 percent of Americans who reach age 65 will eventually someday require help from others to assist them get through their day. On average, women will need help for 3.7 years and men for 2.2. years.
These are statistics that federal employees like other Americans do not like to think about. But federal employees and other Americans do need to seriously consider this information for an important reason: The way that the United States provides long-term care to those who require it because they can no longer care for themselves – be it due to illness, injury, or dementia – is highly flawed.
Federal employees are encouraged to think about how they will pay for their future long-term care needs. Payment for long-term care service can be in the form of purchasing long-term care insurance or self-insuring. To do either or both, employees should understand what long-term care encompasses.
Long-term care (LTC) can be defined as a continuum of medical and personal care services designed to support individuals who need extended help with “activities of daily living” (ADLs). ADLs include eating, dressing, continence, bathing, toileting and transferring (for example getting in and out of bed). LTC is considered as “custodial” care and differs from “acute” care for two reasons: (1) Acute care is considered skilled care in which licensed health care professionals including doctors, nurses and hospitals provide care, usually on a short-term basis. LTC is typically provided by non-health care individuals who provide custodial care on an hourly basis; (2) Since acute care is provided by health care professionals it is more expensive on an hourly basis and paid for mostly by health insurance. LTC is cheaper on an hourly basis but can last for as many as 5 to 10 years and is not paid by health insurance. If an individual has not purchased LTC insurance, the total cost for LTC can far exceed the cost of acute care.
The current system for financing LTC relies heavily on informal (unpaid) caregivers such as family members provide the LTC. Medicaid is the primary payer for formal LTC accounting for over half of national spending on LTC. This has been the case for many years.
Federal employees need to be aware that Medicaid becomes available to an individual only after an individual has almost spent down their financial resources. Most employees when they retire from federal service will not be able to spend down their resources to the point they could qualify for Medicaid. This is because federal retirees will always receive a guaranteed life-time pension in the form of a CSRS or FERS annuity. Most federal employee Social Security retirement benefits, and most employees when they retire from federal service will have anywhere from half a million to three quarters of a million dollars in their TSP account.
In terms of cost, LTC varies by region of the U.S. and the type of care (setting) in which the care is give including: (1) nursing home care; (2) assisted living care; (3) home health care; and (4) adult day care. The following table provides the annual median costs of LTC as broken down by type of care during the year 2020.
Table. Annual Cost of Various Types of LTC in the US During the Year 2020
| Home Health Aid | Homemaker Services | Adult Day Health Care | Assisted Living Facility | Nursing Home Care | |
| $54,912 | $53,772 | $19,236 | $51,600 for a private one bedroom | $93,072 for a semi-private room. $105,852 for a private room |
Why Do Individuals Purchase LTC Insurance?
Individuals purchase LTC insurance for two reasons, namely: (1) To pay for LTC rather than using savings and to protect savings such as retirement accounts -IRAs, 401(k)s and other qualified retirement accounts such as the Thrift Savings Plan, and non-retirement brokerage accounts; and (2) To give oneself more choice for care. The more money one can spend on buying LTC insurance, potentially the better the quality of care on can receive. Those individuals who have to rely on Medicaid will have limited choices. In particular, their choices will be limited to Federal government approved nursing homes that accept payments from the government. Medicaid does not pay for any type of home health care and also does not pay for assisted living in many states.
Why Purchasing Individual LTC Insurance May Not Be Wise?
Private (individual) LTC insurance has been available since the 1980’s, but the market is relatively small. The private market for LTC insurance has significantly decreased within the last 10 y ears. Despite the growing need for LTC insurance as people live longer, newly issued stand-alone individual LTC insurance policies has fallen from 372,000 in 2004 to just under 70,000 in 2017. Likewise, the number of insurance companies offering individual LTC insurance policies has decreased from 105 during the first decade of 2000 to about 6 in 2020. Premium rates for newly issued LTC insurance policies have risen as the remaining insurance companies adjust their premiums.
Surveys indicate that people are often reluctant to purchase LTC insurance because they underestimate their future LTC needs. Another reason is they mistakenly believe Medicare or private health insurance, or group health insurance (such as the Federal Employees Health Benefits Program) will cover their LTC expenses. Some individuals have concerns about insurance company solvency or LTC insurance premiums that are too high or choose not to purchase LTC insurance because they believe family members such as children as an alternative source of care.
For federal employees and retirees, there is an alternative to purchasing individual LTC insurance policies. The alternative is to purchase LTC insurance through the Federal Long Term Care Insurance Program (FLTCIP). Details of the FLTCIP will be presented in the next FEDZONE column.
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.
