The question is how employees are preparing to pay for their future LTC needs. In the second of three FEDZONE columns discussing federal employees and how will they address their possible future LTC needs, this column discusses the Federal Long Term Care Insurance Program (FLTCIP).
Edward A. Zurndorfer
The previous FEDZONE column discussed how most federal employees who reach age 65 will likely have a need for future long-term care (LTC), most likely by the time they reach their early 80’s. The question is how employees are preparing to pay for their future LTC needs. In the second of three FEDZONE columns discussing federal employees and how will they address their possible future LTC needs, this column discusses the Federal Long Term Care Insurance Program (FLTCIP). The various parts of the FLTCIP are discussed, including who is eligible to apply, key choices and features of the FLTCIP, and some recommendations for federal employees and annuitants and their families with respect to the FLTCIP..
What is the Federal Long Term Care Insurance Program (FLTCIP)?
FLTCIP is group-sponsored long-term care insurance program sponsored by the U.S. Office of Personnel Management (OPM), insured by John Hancock Life and Health Insurance Company, and administered by Long Term Care Partners, LLC.
Eligibility to Apply for the FLTCIP
Federal and U.S. Postal Service employees and annuitants, active and retired members of the Uniformed Service and their qualified relatives are eligible to apply for coverage under the FLTCOP. The following is a breakdown of specific individuals who are eligible to apply for coverage:
• Employees:
- Federal employees in positions that convey eligibility for the Federal Employees Health Benefits (FEHB) program, whether or not they are actually enrolled
- U.S. Postal Service (USPS) employees in positions that convey eligibility for the FEHB program, whether or not they are actually enrolled, and
- Active members of the uniformed services.
• Annuitants:
- Federal or USPS CSRS or FERS annuitants
- Retired members of the uniformed services
- Deferred annuitants, and
- Separated employees with title to a deferred annuity, even if they are not yet receiving that annuity
• Qualified relatives:
A qualified relative as described below can apply for the FLTCIP even if the person the qualified relative related to does not apply for the FLTCIP or applies and is denied coverage.
- Current spouses of eligible employees
- Current spouses of eligible annuitants, but not former spouses, even if they are receiving an apportionment of a CSRS or FERS annuity
- Parents, parents-in-law and stepparents of living eligible employees. Parents, parents-in-law and stepparents of annuitants are not eligible
- Adult children, at least 18 years old, including adopted and stepchildren of living eligible employees and annuitants, and
- Domestic partners of eligible employees and annuitants. Visit www.LTCFEDS.com/eligibility for details.
Key Features and Choices with Respect to the FLTCIP
Since there is no one type of LTC insurance that fits every type of individual, the FLTCIP allows individuals to choose among options in three areas: (1) Daily benefit amount; (2) Benefit period; and (3) Inflation protection options. These three options are discussed in more detail.
• Daily benefit amount. This is the maximum amount an individual’s FLTCIP policy will pay in any single day. The FLTCIP offers eight daily benefit amounts (DBAs) from $100 to $450 in $50 increments.
In choosing a DBA that approximately matches the 2021 national average daily cost of care out of one’s pocket to be $260, then $250 would be the appropriate amount to choose. Looking into the future, if one will be living in an area of the country in which the cost of LTC is higher than the national average DBA, then one should choose a larger DBA. To find the average daily cost of care in one’s area, (for home care, assisted living facilities and nursing home care) one can visit FLTCIP here
• Benefit period. The benefit period is the length of time benefits will be paid if a LTC insurance policyholder receives benefits of the DBA each day. Under the FLTCIP, a benefit period of two years, three years or five years may be selected.
Note that if the LTC insurance policyholder receives services that cost less than the policyholder’s DBA or if services are not receive every day, the policyholder’s benefits will last longer than the policyholder’s benefit period.
The benefit period is used together with the DBA to calculate the maximum lifetime benefit.
When deciding which benefit period is the best choice, an individual should think about his or her budget, as well as his or her potential needs. Those individuals who want to keep premium costs low and are willing to pay out of pocket for some LTC expenses, the two- of three-year benefit period may be appropriate. If someone is considered that future advances in medical care could mean longer life expectancy and the possibility of needing care for many years, then a five-year benefit period may be a better choice.
Maximum Lifetime Benefit
The maximum lifetime benefit (MLB) is the maximum amount an individual’s LTC insurance policy can pay. To calculate the MLB, one multiple one’s DBA by one’s benefit period (in days).
Example: $200 daily benefit with a 5-year benefit period (1,825 days)
$200/day times 1,825 days = $365,000 MLB
• Inflation Protection Options. To help make sure that a LTC insurance policyholder’s benefits keep pace with inflation and the rising cost of care, the FLTCIP offers two types of inflation protection:
(1) automatic compound inflation option; and (2) future purchase option.
- Automatic compound inflation option (ACIO). With this option, one’s DBA portion of one’s MLB will automatically increase by three percent compounded every year. The increases under this option are made even if the LTC insurance policyholder is eligible for benefits, without regard to age, claim status, claim history or the length of time coverage has been in effect. One’s premium does not increase annually as a result of this annual increase in benefits. With LTC expenses continuing to rise almost every year, employees, annuitant and other eligible FLTCIP policyholders may want to consider the ACIO. The initial premiums are higher than the future purchase option (discussing next) because one is prefunding automatic future benefit increases that are designed to keep pace with inflation.
- Future purchase option (FPO). With the FPO, a FLTCIP policyholder is given the opportunity to increase his or her DBA and MLB every two years with a corresponding increase in one’s premium. Premiums are not guaranteed. An FLTCIP policyholder may decline a maximum of three times before FPO offers are not given. A FLTCIP Policyholder can change to the ACIO at any time if the policyholder can provide evidence of insurability. This means that the policyholder will be required to provide at his or her expense evidence of good health that is satisfactory to the Long-Term Care Partners, LLC.
Prepackaged Plans
The FLTCIP offers four prepackaged plans that an employee, annuitant or eligible family member can choose from. These plans are discussed at www.ltcfeds.com. For the plan selected, the applicant will need to choose an inflation protection option.
Applying for the FLTCIP and Premium Cost
Any individual eligible for and wants to apply for the FLTCIP must download an application here. Eligible applicants can apply at any time.
Premiums are based on an individual’s age and the FLTCOP premium rates in effect at the time the Long-Term Care Partners receive an application. Note that there is no guarantee that Long-Term Care Partners LLC will accept an application. In the past, FLTCIP applicants have been rejected for a variety of reasons.
Premiums are not guaranteed to remain equal throughout the time a FLTCIP policyholder’s lifetime. A FLTCIP policyholder’s premiums will not change because the policyholder gets older or his or her health changes. However, premiums may increase if a FLTCIP policyholder is among a group of enrollees whose premium is determined to be inadequate. While the group policy is, in effect, OPM must approve the change.
Some Recommendations for Federal Employees and Annuitants and Their Families with Regard to the FLTCIP
OPM recently announced that it will be renewing its contract with Long-Term Care Partners starting in July 2023, just like OPM did in May 2015 when it renewed its contract with the Long-Term Care Partners starting July 2016. OPM also announced that there will likely be premium increases starting in late 2023 for existing FLTCIP policyholders as well for new applicants.
In 2016, FLTCIP insurance premiums were increased for existing policyholders on average 83 percent – almost doubling. The same thing will likely happen in 2023 – perhaps even higher increases. The problem is that fewer federal employees and annuitants and family members over the years have been applying for the FLTCIP. Many who did in the past and approved are in nursing homes or assisting living and receiving their benefits stops paying premiums. This has caused a drain on John Hancock Life and Health Insurance cash reserves. The low interest rate environment over the past eight years has resulted in John Hancock’s significant decrease in investment income and associated cash reserves, necessitating premium rate increases.
What are federal employees, annuitants and family members to do with regard to the FLTCIP? First, if they currently own FLTCIP insurance, they should keep their insurance and not “shop around” for perhaps another long-term care insurance policy that is somewhat cheaper. With fewer insurance companies offering individual LTC insurance, there is little chance one can save by switching. And that assumes that an individual could qualify for an individual LTC insurance policy. Second, if they do not currently own FLTCIP insurance and feel they are at the right age to apply for it (they are in their late 40’s or 50’s), they should apply before Jan. 1, 2023. OPM has announced that with the start of the new contract with Long Term Care Partners, LLC, effective sometime in early 2023, it may put a temporary hold on new FLTCIP applications.
Another possibility for those employees and annuitants and family members who currently do not own LTC insurance is “self-insuring” with respect to their future needs. “Self-insurance” for future LTC needs will be discussed in the next FEDZONE.
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.
