Premium increases come to federal Long Term Care insurance

Insurance premiums for long term care insurance are going up, and many Federal News Radio audience members have expressed dismay about having to pay more.

This week, Senior Correspondent Mike Causey spoke with Arthur Stein, Certified Financial Planner, about why the premiums are going up, and how you might be able to mitigate certain cost increases.

Stein began by explaining that the premiums are rising because a seven-year contract has ended.

"At the end of seven years, the insurance company that is providing [coverage] -- which is now John Hancock -- does not have to renew. If they do renew, it doesn't have to be at the same premium level and the benefits don't even have to be the same. The second thing about the federal contract, and this is unique to the federal contract, is that the only money available to pay benefits is an investment fund -- they call it the 'experience fund'. The only money in that fund are premiums paid, plus earnings minus expenses and claims. If they start to run out of money, they don't go to the insurance company to get money. What they do is -- under the old program, reduce benefits. As far as I can tell, under the new program, what they would do would be to increase premiums."

Causey said that it is important to remember that there were no premium increases at all during the past seven years, and those who joined at the beginning of that period, or six weeks before the last period ended, you paid the same.

Stein said this was very unusual, and it might be why the current premium increases are such a shock to some.

"Seven years ago, when the federal program started, the goal was that the premiums be conservative, which meant that they be high enough so that there wouldn't be premium increases down the line. What happened was that then there were no changes in the premiums for people buying new coverage -- or having existing coverage -- during seven years. But, when you look at what was going on in the private sector, all the companies were bringing out out new policies that were more expensive than the old policies. So, the people who already had coverage didn't get premium increases, but the people who were buying new were paying more. Feds didn't do that."

Thus, many are seeing increases now of anywhere between five to 25 percent. Stein said this is where it gets complicated.

"If you have the original coverage with the automatic compound inflation adjustment and you are less than 69 when you purchase the policy, and you stick with what you have, your premium is going to go up five to 25 percent. If you switch to the new policy, and stick with the same set of benefits, your premiums would go up even more. For many people, significantly more [because] you're older and because the new policy is more expensive than the policy it replaces. Even taking into account the 25 percent increase, the new policy on top of that is, as far as I can tell, about seven to 10 percent more expensive, depending upon your age and the benefits you get."

Stein said the most important thing to keep in mind is that anyone who has long term care insurance bought it for a reason -- to make sure one does not run out of money if something tragic happens down the road.

"If you reduce your benefits, either now or in the future, you have to ask yourself -- how am I going to make up that difference? So, what I suggest to people is, just because you're getting a 25 percent premium increase -- I know it's extremely aggravating [and] a lot of people felt like they were misled -- but, ask yourself, can I afford the premium increase and just keep my existing benefits? If you can, you should think about doing that."

Stein also noted that everyone should remember that health insurance does not cover long term care.

To listen to the entire show, click on the audio link above.

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