Last week we discussed the importance of investigating whether you need long-term care insurance. This week, we'll go a step further, taking a more in-depth look at the Federal Long-Term Care Insurance Program and how it has changed from its original offering to the new version 2.0.
Remember, long-term care insurance might not be for everyone. You must be prepared and be able to pay premiums for life. In addition, studies have shown that if everyone applied for long-term care insurance at 65, between 12 percent and 23 percent would be rejected for pre-existing medical conditions. At 75, the figures rise to 20 percent to 31 percent. According to a 2007 Government Accountability Office study, long-term care insurance policyholders tend to be relatively wealthy. Many financial planners suggest that the insurance is appropriate if you have an income of at least $35,000 each and assets that range between $300,000 to $2 million, excluding your home and your car.
If you've decided that long-term care insurance is for you, then it's time to look at several key issues that can affect how much insurance you buy.
Costs and Benefits
With long-term care insurance, you purchase a daily benefit -- the amount of coverage your policy will pay for care each day. In the new version of the federal plan, the daily benefit ranges from as little as $100 per day to $450 per day or more. Since facility care is the most expensive, you should look into how much nursing homes in your area charge. The average cost for a private nursing home room is $203 a day, or more than $74,208 a year, according to a survey released earlier this year by insurer Genworth. Long-Term Care Partners, which administers FLTCIP, offers a calculator to determine the cost of care in your area.
Policies range from those with unlimited benefits to those capping coverage at two, three or five years. The difference in price between a two-year benefit period and an unlimited one is about double the premium. Keep in mind that most people receive care at home before entering facility care. Nursing home care is the most expensive, but also is the care of last resort. The average stay in a nursing home is around two and a half years, but in many cases a person goes to a nursing home only after a family member can no longer provide care at home or after assisted living care is no longer appropriate.
If you buy a partnership plan, which allows you to qualify for Medicaid benefits without exhausting all your assets, you can limit it to the value of the assets you wish to protect. FLTCIP has information about partnership plans, but it is currently unknown whether the federal plan will be considered a partnership plan in any state.
You also need to consider inflation protection options, which have been the subject of some controversy lately. With the automatic compound inflation option, your daily benefit allowance will increase automatically by either 4 percent or 5 percent each year. (You choose the percentage when you apply.) Your premium doesn't automatically increase annually, but premiums aren't guaranteed.
If you don't anticipate paying for long-term care insurance for more than 10 or 20 years, you should go for a larger daily benefit and a lower inflation option. If you use your policy more slowly, it will last longer. For example, if you have a policy that pays $200 per day for five years, but you only spend $100 a day, your policy would last 10 years. But if you are buying at a younger age, the inflation options will show larger differences after 20 to 30 years of coverage. Alternatively, you can choose the future purchase option, which features lower premiums but doesn't have automatic future benefit increases. You can increase your daily benefit allowance and maximum lifetime benefit every two years with a corresponding increase in your premium.
Here's more information on inflation protection options.
When to Buy, What to Buy
As to the question of when, there's no time like the present. The longer you wait, the higher the price. (Of course, the younger you are when you enroll, the longer you'll be paying premiums.) In addition, there is the issue of medical underwriting. By waiting, you stand the chance of not qualifying if you should develop an illness or have an accident. Recently hired employees have abbreviated underwriting requirements, meaning they don't have to answer as many health-related questions.
There's also the question of whether to go with FLTCIP or shop for a plan on the private insurance market. Here are some of the reasons that you should consider the federal plan:
- The Office of Personnel Management reevaluates the program every seven years to be sure the premiums collected will continue to cover the future cost of benefits and to allow competition between companies who wish to bid on the contract. Although there is a price increase coming for many people who bought federal policies during the last seven years, the alternative would be to lose the coverage altogether. The federal plan is priced competitively with private long-term care insurance policies.
- The stability of John Hancock, the insurance company that underwrites the federal policy.
- The leverage provided by the size of the federal group (eligible enrollees include employees and their spouses, parents, parents-in-law and children, along with retirees and their spouses) helps keep prices low.
- Care coordinators are available to provide services that help families prepare for long-term care.
- Premiums are waived if you are eligible for benefits and have satisfied the waiting requirement.
- The waiting period to receive care is 90 days and it needs to be met only once during a lifetime.
- The plan covers informal care provided by family members in the home.
- Your coverage is portable even if you leave federal service.
- Your policy can't be canceled due to your age or future medical condition.
Here are some reasons to look outside the federal plan:
- If you are interested in a partnership policy, they currently are not available in the federal program.
- If you and your spouse are buying coverage together, you might be able to find a shared policy that can save you money. Under such policies, benefits are pooled, so if one spouse uses some of the benefits, the remainder is available for the other spouse.
- If you are in excellent health, some policies will offer you a discount. The federal plan does not.
Version 1.0 or 2.0?
If you already have a federal policy under the original version of the program, you might be eligible to modify your policy or switch to the new version 2.0. Here's a comparison of the old version and the new one. And here's a list of frequently asked questions regarding the changes that have occurred with the new contract.
If you purchased a policy under the original version with the automatic compound inflation option and were under 70 at the time of purchase, your premiums will be increasing effective Jan. 1, 2010. Long-Term Care Partners will offer participants alternative benefit options to maintain a similar premium payment but with a less generous inflation option (4 percent instead of 5 percent). Read the information carefully before making the decision to keep your current coverage, upgrade or downgrade your current policy.
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 Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.