Long term care insurance: Sharp hike in premiums for feds means enrollees face tough choices
Experts say although long term care is in the cards for most older Americans, an upcoming spike in LTC insurance premiums for feds who are enrolled is just part of a pattern that will remain unbroken until Congress and policymakers act on the neglected—but vital—broader issue of long term care and accompanying costs that will affect a majority of federal families. The program remains closed to new applicants.
Updated: 1:59 p.m., Sept. 20
The average life expectancy for Americans now stands at 76.4 years.
And federal employees—like employees across other sectors of the economy—for decades have been offered a chance to buy long term care insurance policies as a voluntary benefit.
That is, until December 2022, when the federal government temporarily suspended the program to new applicants.
Although it remains closed to new enrollees, the Federal Long Term Care Insurance Program is now in an opt-in period for new choices that opened on Sept. 11 and ends on Nov. 9. The catch? Premium prices are slated to increase massively, according to the National Active and Retired Federal Employees Association, which has been researching the matter, in many instances by more than 80%, according to John Hatton, Vice President Policy and Programs at the organization.
Such an increase would be not only tragic—obviously closing the door on one way for federal families to pay for long-term care, either toward the end of life or after a disabling event—but it’s also ironic. The Office of Personnel Management last year said the government had suspended the program in order—you can’t make this stuff up—"to establish sustainable premium rates that reasonably and equitably reflect the cost of the benefits.”
Well, increasing premiums by nearly doubling them might reflect costs and make the program more sustainable for underwriters. But it certainly doesn’t add “sustainability” to most of those hoping to take part in the program.
“Big premium increases on long term care policies has been the trend for some time,” Howard Bedlin, Government Relations & Advocacy Principal for the National Council On Aging, told Government Executive. “And we're likely to see it continue.” Bedlin pointed to a 2022 survey of insurance companies that have offered long term care insurance which definitively details that trend.
“This kind of sharp premium increase leaves families who have already invested in LTC policies with three choices,” Bedlin continued. “They can pay higher premiums for a policy they bought long ago, or if they can’t afford the increase just drop the policy and [lose the investment] altogether—or, third, for some, they can agree to take less robust benefits and pay for even more care costs out of pocket. None of these is great.”
FLTCIP participants who stop making payments do not lose all of their policy’s value—but, for those who have paid over significant time, they potentially lose most of it. Participants who stop paying fall under what the program calls “contingent benefit upon lapse.” Instead of full coverage, they are eligible to receive a maximum payout equal to either the exact dollar amount of premiums paid to date or 30 days coverage at their “Daily Benefit Amount”—whichever is greater.
Another expert on senior care and related benefits, Mary Johnson, a policy analyst on Medicare and Social Security for the Senior Citizens League, also responded to NARFE’s warnings on the issue.
“Premiums for long term care insurance—the price of these programs, to people who take out these policies—have been going through the roof for at least a decade,” Johnson told Government Executive. “These programs have become cost-prohibitive for most middle-income earners.”
“But this level of premium spike, it is just unimaginable to me,” she added. “I am flabbergasted, but at the same time not really surprised. Because this market went through a crisis over a decade ago, where the costs to the insurers was deemed too high and many dropped out—leaving a smaller number of insurers, higher premiums and lower benefits. I think this federal move is just another round of this.”
Johnson added that in addition to healthcare inflation the now-smaller pool of insurers and insured is also likely driving premium costs even higher—and, like NCOA’s experts, expects those trends to continue.
Bottom line: The decision to take out long term care insurance—or not—has always been a complicated one, even before the news of the upcoming spike in premiums. It has always been relatively expensive and suited only some families, and not others, depending on a given employee’s financial and actuarial picture.
But before you dismiss the program entirely—remember that the current 76.4 year average life expectancy is calculated from birth (and, yes, sadly, that number has been falling—due, health experts say, to a rise in bad diets, obesity, fentanyl, faltering medical care and COVID.) If you’ve survived to 65, your average life expectancy actually rises another decade—to an average of 84.6 years!
That’s a lot more life. And a lot more years to pay for, and—to put it bluntly—some of which won’t be your healthiest.
Most of us—about 70%—will need at least some long term care. Policymakers, Congress and individual feds and their families, must continue to consider FLTCIP as well as any other means of paying for at least some of that care.
“Nursing homes often cost over $100,000 a year,” NCOA’s Bedlin said. “It's difficult to figure out how we can do this … but we have to try to figure this out.”
“Hope springs eternal,” Bedlin continued. “And we hope that as Baby Boomers get older and the need on this only increases a political push will come and find ways to alleviate the burden that families face—not just with paying for caregiving but with too many people having to cut back at work or quit jobs—suffering their own health issues—in trying to care for loved ones.”
A final, and very important, point: "It's probably not the best option to simply decide to stop participating if you are enrolled, even for those who might now be only able to afford lower benefits," NARFE's Hatton told Government Executive. "For those who have been paying in for a time, to stop paying would be forfeiting a lot of value, significant money you've already put into the program."
Clarification: An earlier version of this column did not include information on the
“contingent benefit upon lapse” option for policy participants who cease paying premiums.