Q. My husband and I are both retired Federal employees and recently received letters in the mail from Long-Term Care Partners about our Federal Long-Term Care Insurance Program. It referenced a rate increase, and asked that we make a decision by September 30 about whether to continue our policy. The problem is that the rate increase is HUGE. If I choose to stay with them, next year I would be paying MORE THAN DOUBLE the cost of this year’s premium. For me, the cost would go from $283 to $583 and for my husband, it would go from $373 to $843 per month! This is an increase for us from $7,872 per year to $17,112 per year. That is almost an extra $10,000 per year to keep our same benefits — a lot of money for a retired couple on a fixed income and fixed budget.
This puts us in a very tough spot. I like the peace of mind of having long-term care insurance, but this is simply unaffordable for us. Do you recommend we modify our budget and somehow find a way to pay for this or look elsewhere for long-term care insurance? If neither of those options are recommended, are there any other options you could recommend?
A. According to the Federal Long-Term Care Insurance Program (FLTCIP) Website, a new contract was recently awarded to John Hancock Life and Health Insurance Co., that will result in larger out-of-pocket costs for Federal Long-Term Care Insurance Program enrollees in the fall of 2016.
The new, seven-year contract retains John Hancock, which last received the contract in 2009. Since the last contract, insurance rates increased annually for enrollees who opt not to pay higher costs up front, at a 4% to 5% annual inflationary increase. In 2009, FLTCIP enrollees saw their premiums jump by as much as 25%. Now, as you can see from your statement, your premiums are increasing by a whopping 225%! This is a previously unheard of increase for the FLTCIP program.
According to the FLTCIP website, “premiums are not guaranteed and could increase again in the future” and “premiums may only increase if you are among a group of enrollees whose premium is determined to be inadequate and OPM approves the change.” With those vague statements, premiums can increase at any time, and at any amount they deem appropriate. It is quite risky not to know what to expect from year to year, especially with this current increase of 225%!
You are not alone in your anger and concern over the skyrocketing premiums. Advocates for federal employees and retirees have joined lawmakers in demanding answers. The National Active and Retired Federal Employees Association (NARFE) on Monday announced that it has sent letters to three congressional committees seeking hearings on the premium increases.
“I am stunned at the extent of the increase and angry that this type of financial pressure is being placed on federal employees and retirees,” said NARFE National President Richard Thissen, in a statement. “This situation should not have occurred and signals the need for change in the structure of FLTCIP to prevent federal employees and retirees from ever facing such huge, unexpected increases again.” Read more about this in a recent article.
Premium Increase is Not Just for Federal Government LTC Insurance
For anyone with long-term care insurance, premiums are rising, and the media reported that private policyholders could be paying as much as 130% more for their coverage this year.
To help consumers, all but nine states have adopted a long-term care insurance rate stability regulation and, in most cases, it’s based on a model recommended by the National Association of Insurance Commissioners. However, there are unintended consequences to these state regulations. Many insurance companies are simply choosing not to do business in states where a rate stability regulation has been adopted.
Uncertainty about rate increases and other issues such as lapsed policies, costs that were never paid by the insurance company, no benefits or reduced benefits for certain types of care (such as home care), and policies not being enough to cover nursing home care have caused long-term care insurance policies to be a less popular option for long-term care planning. In fact, only 100,000 traditional long-term care insurance policies were sold in 2015, compared to 700,000 in 2000. It is currently estimated that only approximately 10% of the American population is covered by long-term care insurance.
Long-Term Care Insurance and Medicaid-Related Issues
There are numerous important Medicaid-related issues that must be considered and understood before purchasing long-term care insurance, or deciding whether to keep a policy whose premium is skyrocketing such as yours. For instance, it is very possible to buy too little or too much coverage. For married couples who can only afford coverage for one spouse, it is also critical to understand which spouse should have the coverage. Unfortunately, most insurance agents who sell long-term care insurance have no understanding of Medicaid nor the Medicaid-related issues that must be considered. Whether you are a potential purchaser or an insurance agent who sells long-term care insurance, please read our Long-Term Care Insurance FAQ to get a basic understanding of these important Medicaid issues.
Other Options to Pay for Long-Term Care
If you decide long-term care insurance is still the right asset protection choice for you and your family, you should always consider incorporating it as part of your overall long-term care plan, not necessarily as the only form of asset protection planning for long-term care. Keep in mind that there are dozens of long-term care asset protection strategies other than long-term care insurance.
Medicaid Planning can be started while you are still able to make legal and financial decisions, or can be initiated by an adult child acting as agent under a properly-drafted Power of Attorney, even if you are already in a nursing home or receiving other long-term care assistance. In fact, the majority of our Life Care Planning and Medicaid Asset Protection clients come to us when nursing home care is already in place or is imminent.
If you are still relatively healthy, then instead of Life Care Planning and Medicaid Asset Protection Planning you should consider our Living Trust Plus™ Asset Protection Trust, which is a simpler and MUCH less expensive method of asset protection for clients who will most likely not need nursing home care for at least five years. For most people, the Living Trust Plus™ is a preferable form of asset protection compared to long-term care insurance when it comes to covering nursing home care. For purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that allows a settlor to retain an interest in the trust and control over the trust and the right to change the beneficiaries of the trust while also protecting the assets from being counted by state Medicaid agencies. Keep in mind that a revocable living trust does not protect your assets in connection with long-term care, but rather only protect your assets from going through the nightmare of probate.
As always, if you have not done Long-Term Care Planning, Estate Planning, or Incapacity Planning (or had your Planning documents reviewed in the past several years), please call us to make an appointment for an initial consultation:
Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797
About Evan H Farr, CELA, CAP
The article says that premiums are increasing by 225%. It appears to me that the new rate will be 225% of the old rate, which is currently a reference value of 100%. The actual increase is only 125%.
Thanks for clarifying!
Just because the LTC rates were raised for Federal employees – this has now become a major issue. However, when this has/had been happening to ordinary people over the years – especially by John Hancock – it was not a major problem. John Hancock has been at this for years. It got a little press – but nothing major and certainly no outrage. I had to reduce my benefits by adjusting my deductible and extending the time before the policy would kick in – in order to keep some measure of LTC coverage. No one cared. But – NOW – because it affects Federal employees, it has become a big deal. Where the heck was everyone for the rest of us? And now you want to know why ordinary folks are disgusted and furious?