October 28, 2011As employees and retirees begin to gather information for the upcoming Federal Employees Health Benefits Program open season (which runs from Nov. 14 to Dec. 12), it might be a good time to look back at another open season that occurred earlier this year, involving the Federal Long-Term Care Insurance Program. The FLTCIP open season ended June 24 and resulted in a significant increase in the number of enrollees. Even though the open season is over, employees and retirees should consider the role that long-term care insurance could play in their future, because you can always apply for this insurance benefit with full underwriting.
Long-term care is defined as care you receive if you are in need of assistance to perform activities of daily living due to a chronic illness, injury, disability or the aging process. It includes the supervision you might need due to a severe cognitive impairment (such as Alzheimer's disease).
Long-term care is generally not covered by FEHBP, Medicare or Federal Employees Group Life Insurance. If you would like to receive care in your home or an assisted living facility, your retirement income may not be sufficient to cover the cost of care. For nursing home care, Medicaid and veterans benefits may be available, but they are limited to those with little income or few assets, which is why they are considered the "payer of last resort." Unless you have family members who can provide long-term care, it can be very expensive, and most of the expense will come out of your pocket. That's why many people purchase long-term care insurance.
But how do you pay for the premiums? In some cases, you might be at a stage in life where your need for life insurance is less than it was 10 or 20 years ago, so you might be able reduce your coverage. In the case of federal employees and retirees, it might be time to reevaluate your need for FEGLI, which could free up money to pay for long-term care insurance. In the insurance industry, this is referred to as "trading premiums."
Let's look at an example. Suppose Andrew is 55 and carries three multiples of FEGLI Option B in addition to FEGLI basic life insurance. His youngest child recently married and his house is almost paid off. He has 33 years of federal service and has been contributing to the Thrift Savings Plan since 1987. Andrew's wife would receive 55 percent of his CSRS retirement if he died before her, and she is the beneficiary of his TSP account.
Based on his current salary of $75,000 a year, Andrew has $77,000 of basic FEGLI coverage at a cost of $300 per year. He also has $225,000 worth of Option B coverage that costs $1,638 per year. But that cost will increase to $3,510 per year when he turns 60.
Andrew could trade some of that coverage for long-term care insurance. For a premium of $116 a month, or $1,398 a year, he could get long-term care coverage of $150 a day for three years or a pool of $164,250 worth of benefits (used at a maximum rate of $150 a day, or $4,500 a month). The benefit would begin 90 days after he qualified for care, and would include a 4 percent automatic compound inflation option -- allowing the daily benefit amount and remaining portion of the maximum lifetime benefit to automatically increase by 4 percent compounded every year. It's important to remember that the premiums are not guaranteed and could increase in the future.
Beth O'Brien, a senior account manager at Long Term Care Partners, which administers the FLTCIP, says more than 48,000 federal employees and family members applied for long-term care insurance during the FLTCIP open season. That was more than two and a half times the number anticipated, and resulted in a 20 percent increase in FLTCIP enrollment. FLTCIP is the largest group long-term care insurance program in the country, with more than 270,000 enrollees.
O'Brien says the program currently is paying out more than $5 million a month in benefits. FLTCIP has received more than 8,000 claims for benefits. Of them, 66 percent are for home health care, 23 percent for assisted living facility care, 10 percent for care in nursing homes and 1 percent for adult day care.
Of those people getting benefits for home health care, 25 percent are using health aides, 32 percent are paying for care provided by informal caregivers (such as friends and neighbors), and 9 percent are receiving care from family members.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Mondays at 10 a.m. EDT on federalnewsradio.com, or on WFED AM 1500 in the Washington-metro area.
October 28, 2011