What federal employees need to know about the Federal Long Term Care Insurance Program.
Welcome to part eight of our series of “listicles.” We’ll be going over 5 key points to remember for several areas of retirement planning and employee benefits for members of the Federal Workforce. The first seven topics we covered were FERS, CSRS, the TSP, FEHB, FEGLI, social security, and tax planning. Now we’ll be covering FLTCIP.
Attend our next no-cost webinar to learn more about long-term care planning for federal employees and retirees -
1. What is FLTCIP?
The Federal Long Term Care Insurance Program (FLTCIP) began in 2002 and since then, has always been plagued by low participation rates that result in cuts to the benefits and increases in premiums. With such being the case, there have been three types of FLTCIP coverage offered: FLTCIP 1.0 (policies purchased from 2002 to 2009), FLTCIP 2.0 (from 2010 to October 2019), and the last type of plan, FLTCIP 3.0. The coverage has always been provided through John Hancock, although the company has been attempted to wiggle out of the federal contract a few times in the last decade. At the end of last year, in fact, the LTC (long-term care) benefit plans available to federal employees, retirees, and their family via “ltcfeds.com” temporarily paused all new applications for an estimated 24 months. For coverage purchased before this pause went into effect in December of 2022, benefits are still available as long as the premiums are paid. The insurance was designed to cover long-term care costs. Some studies suggest at least 1/3 of all Americans will need some form of LTC.
2. Coverage, Benefits, and Features
For policies that are still active, the amount of the premium is dependent on three main factors, other than the age of the participant upon purchase. The first component is the daily benefit amount (DBA), which ranges from $100/day to $450 for LTC expenses. Next there’s the “benefit period,” the amount of time the insurance should last once benefits are claimed: there’s a 2-year period, a 3-year, 5-year, and an unlimited option. The third factor is inflation protection. Before the recent suspension, feds could apply for an FLTCIP policy with no inflation feature, with an automatic increase of 4% or 5% every year (without impacting the premium), or with a future purchase option, which would allow policyholders to attain more LTC insurance every two years for an additional cost. The lower the DBA would mean a lower premium, and the benefits cover both in-home and in-facility LTC expenses. One is considered eligible to receive LTC benefits when they are no longer able to independently complete 2 out of 6 “Activities of Daily Living” or “ADL.” These include bathing, using the toilet, eating, dressing themselves, “transferring” (being able to get out of bed or move from a chair), and the ability to maintain continence. The FLTCIP 2.0 and 3.0 plans also have a 90-day waiting period, meaning benefits will not be provided until 90 days after the covered individual is unable to perform at least 2 of the ADL.
3. FLTCIP 3.0 Enhancememnts
As mentioned above, the latest type of FLTCIP plan went into effect in October of 2019: FLCTIP 3.0. These plans included the premium stabilization features, increased international coverage, and provided more coverage for at-home care. Premium stabilization does one of two things, depending on age. If the policyholder were to never claim their plan’s benefits and pass away before the age of 85, 35% of the premiums paid would be disbursed to a beneficiary as a death benefit. Upon reaching the age of 85, a living participant with an FLTCIP 3.0 policy would be able to use 50% of their premiums paid to pay for future premiums due. As for international coverage, benefit went from covering 80% of LTC costs paid for international claims to 100% with the 3.0 coverage.
FLTCIP needs a sturdy participation rate to be financially sustainable, so that’s most likely why a large pool of individuals were able to apply for coverage. Not only were civilian and military servicemembers and their spouses able to apply for an FLTCIP plan, but also their surviving spouses, adult children, parents, stepparents, and in-laws. Despite this, not enough people obtained a policy, leading to the current suspension in which no one is now eligible to apply for coverage at ltcfeds.com. When the program was accepting new applications, new hires were able to apply via a simplified underwriting process, composed of seven questions (or nine, if married) as opposed to the more intrusive questionnaire given to those who did not apply within the first 60 days of their hire date.
5. Premium Increases and Alternatives
When the FLTCIP contract was to be renewed in 2016, John Hancock was the only bidder. To keep the program viable, existing policies saw an average premium increase of 83%. This led to many canceling their coverage and exposed a major downside of the federal LTC insurance program – unexpected and drastic spikes in cost. As the insurance was intended to cover costs that wouldn’t incur for decades down the road, the possibility of such premium increases in the future dissuaded some from applying who may have otherwise found the insurance affordable. Also, FLTCIP could not compete with the private LTC insurance market, which maneuvered away from offering basic LTC insurance and towards “LTC riders” that were attached to life insurance policies and annuity contracts. Given the current uncertainty of FTLCIP’s future and the complexity and price associated with life insurance and annuity products, many federal employees are opting to self-insure when it comes to preparing for LTC expenses during the final stages of life.
If you’d like to dive into more detail about long-term care options for feds, check out this page. On that page, you can also register for the next FLTCIP webinar with Ed Zurndorfer. It’s never too early (or too late) to learn about your retirement benefits and start making a plan! For an even deeper dive into your retirement planning as a federal employee, check out our entire (no-cost) webinar series.
Until Next Time,
**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.