Explaining the changes to the Federal Long Term Care Insurance Program

It's not something many people enjoy thinking about -- what will happen to you if you become disabled in old age?

Many do worry about being forced to live in a nursing home and leaving their loved ones with hefty bills, which is why there is an option to purchase long term care (LTC) insurance.

The Federal Long Term Care Insurance Program (FLTCIP) has seen some recent changes, and Federal News Radio Senior Correspondent Mike Causey chatted about them with Certified Financial Planner Art Stein on Wednesday's Your Turn.

Stein explained the difference between the federal option and what's available for individual policies that can be purchased privately.

"The new federal program . . . [is] much more competitive with individual policies. It's greatly improved in many ways. The disadvantages that you have with it are that spouses and partners cannot get a benefit called shared care. There are no discounts for people in excellent health. There are no discounts for spouses and partners getting policies. At the current time, partners cannot get a policy. The partner of an employee or retiree cannot get a policy as the result of that partnership status, but almost all individual policies recognize partners and give a discount if both partners apply. There are a lot fewer choices with the federal policy than there are with individual policies."

Stein did add that the changes did improve some aspect of the federal plan and make it equal to certain aspects of individual private plans.

"It now is as good as the individual policies in a sense. The home care benefit is now equal to the nursing home and assisted living facility benefit. One nice advantage is, they've made it easier to meet the deductible and they've got a very nice benefit for people who are getting care at home. You can get 30 times your daily maximum to spend on things like caregiver training, home modifications, emergency system. That equals the benefit in many individual policies -- it doesn't exceed it. . . . So it is much more competitive. The big problem you have with the federal program is . . . it's a seven year contract between the insurance company and OPM. At the end of seven years, that insurance company, which is John Hancock, does not have to renew the contract. If they do, it could be at a higher premium."

Stein explained this is why many who participate in the FLTCIP have seen increases in their premiums.

"With people who bought the original version, many of them have seen their premiums go up by as much as 25 percent. . . . The way that this works is, one -- the only premium increase is for people who bought the 5 percent compound inflation adjustment, which is called the Automatic Compound Inflation Option (ACIO). Anybody who purchased that who was 70 or younger when they purchased the policy is going to get a premium increase. If they are 65 or younger when they purchased the policy, they're going to get a 25 percent premium increase. It happened that a very large number of people who purchased the older federal policy did get the ACIO, which is great -- I think everybody should get that -- and I'm guessing that most of them were younger than 65 when they purchased. . . . So, lots of people are getting that premium increase."

Stein said the legal guarantees in individual policies are much better than what the federal government offers, because what the federal government offers is a group policy, which means the risk is automatically higher.

He added, however, that LTC insurance is practically a must in this day and age.

"You need long term care insurance because long term care can be extremely expensive. Some people will spend a million dollars or more. Medicare and health insurance does not pay for it and the annual costs could easily exceed CSRS annuity or the combined annuity and Social Security payments of a FERS retiree and cause them to have to spend down all of their investments and perhaps {wind} up with not enough money to continue their care without going on Medicaid. You need this because federal employees have such a great set of benefits that they're covered for almost anything except a long need for long term care and that's what can really screw up their retirement."

Stein also noted that long term disability and long term care are two completely different things, which everyone should keep in mind.

"Long term disability replaces lost income if you cannot work. Long term care insurance reimburses the costs that you would have to hire people to provide long term care to you. Someone who was permanently disabled when they were young would benefit from having both disability and long term care insurance because they have two separate costs."

In addition, Stein said LTC insurance is necessary for two very big reasons.

"You would need long term care if you are in one of two situations or in both situations. The first is if you have what is called cognitive impairment, which means you have Alzheimer's or Parkinson's or you've had a stroke and you are no longer able to take care of yourself or you need supervision. . . . The second reason is if you need help with what are called activities of daily living (ADL's). Those are bathing, eating, toileting, dressing, continence and transferring -- transferring being the ability to get out of or back in a bed or a chair. . . . Those expenses, once again, are not covered by your health insurance and they're not covered by Medicare."

For more information, you can contact Arthur Stein at 301-941-9170 or astein@finsvcs.com.

To listen to the entire show, click on the audio link at the top of the page.

Read Mike's Wednesday column: Long Term Care: Who, What, When?

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