Why Are Federal Long Term Care Insurance Premiums Rising?
Last week we met with a long-time client who retired from the federal government. Prior to retiring, she had the foresight to purchase the long term care insurance offered through the federal government (FLTCIP). However, she and (we) were shocked to find out about the most recent increase in this program’s costs – over 125%!!
In terms of the “sticker shock,” there will be an average increase to your monthly insurance premium of 83%, or $111, for those that opt not to change their coverage. John Hancock Life & Health recognizes that not all policy holders will be able to afford this change; therefore they have provided a personalized letter indicating the various options available to maintain the premium at the current level. Ultimately, this change will take effect on November 1, 2016 for affected policy holders, and there is a September 30th, 2016 deadline to review and choose your option.
Now that you have a better understanding of the situation, let’s discuss the options so you can make an educated decision on what is best for you and your family financially.
Option 1: Renew the Coverage at the Higher Premium
This option allows you to keep the coverage you currently have at the new, more expensive premium. If you decide to take this option, then no action is needed on your end as the policy holder. If you choose this option and do not have sufficient leeway in your budget to cover the higher premium without significant impact to your lifestyle, you might have to consider reducing expenses or increasing income elsewhere to cover the difference. Examples could include increasing your withdrawal amount from your retirement fund(s) or reducing discretionary expenses like vacations or gifts.
Option 2: Renew the Coverage but Revise the Benefits to Lower the Premium
As previously mentioned, John Hancock Life & Health realizes that not all of their enrollees will have the financial capacity to pay the higher premium. Therefore, they have given you the option to reduce your coverage at a lower premium. If you are unable to afford the higher premium, then one of the revised coverage benefits would be preferable to cancelling the coverage. The default option they provide is to reduce your Cost of Living Adjustment (COLA). The upside here is that you get to keep your FLTCIP coverage but the downside is this reduced COLA. Since the cost of long term care is increasing so fast, the importance of these COLA’s cannot be highlighted enough. It is also possible to request another reduced benefit option not listed (such as same daily benefit but reduced benefit period) by calling the customer service line at 800-582-3337.
Option 3: Paid-Up Limited Benefits
With this option, no future premiums are due. This option allows you to keep your current daily benefit amount, but your maximum lifetime benefit will be reduced to your total premiums paid through November 1st, 2016, OR 30 times the current daily benefit amount of your coverage (whichever is greater).
Closing Thoughts
It is important not to forget the following:
- 70 percent of individuals over age 65 will need some type of long-term care in their lifetimes
- The average length of a nursing home stay is 2.4 years
- Medicare and/or retiree health insurance benefits typically will not cover these expenses.
- The total cost of a long term care need can easily approach or exceed $200,000 (in today’s dollars)
- The need is unpredictable, both in terms of its timing and in the extent of care that will be required.
- The need has the potential to inflict a tremendous burden—financially and emotionally—on family and friends who themselves may not be capable of assuming it.
- Without adequate insurance, the need for long-term care may ultimately result in having to rely on public assistance, which greatly limits one’s options and choices.
A “knee-jerk” reaction to all of this might be to eliminate your long term care all together. While we can empathize with this response, we believe that more thought needs to go into the equation. It is paramount to ensure that if you need long term care, you will have the resources to pay for care to avoid depleting your financial assets.
As with any important financial decision in your life, it is important to discuss your unique situation with your financial advisor to determine which option is right for you and your family.
Co-authored by Gary S. Williams, CFP®, CRPC®, AIF® and Nicholas Ibello, CFP®
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