“OPM and its FLTCIP carrier say they need time to assess the program so that rates are more reasonable and sustainable.” Jim Fish
by Jim Fish
If you are not already enrolled in the Federal Long-Term Care Insurance Program (FLTCIP) but are planning on doing so, you should count on delays with your application due to OPM’s recently announced 24-month suspension.
As of December 19, 2022, Federal employees not currently enrolled in the FLTCIP can no longer apply for coverage. If you are a FLTCIP participant, you will not be able to increase your coverage under the program. Initially scheduled for 24 months, the suspension may be ended before that time or extended by the OPM. For current participants, the suspension won’t affect coverage status as long as they continue to pay their premiums. If you’ve filed a claim, there are no coverage claims or the reimbursement process as long your benefits aren’t exhausted.
What caused this situation?
Several issues contributed to the government’s decision to pause FLTCIP.
One issue is that long-term care services costs are skyrocketing. The price of long-term care needs is trending upward, with no sign of slowing down. In 2021, for example, the average cost of a home health aide rose to a national average of $4,957 per month. Adult daycare averaged around $1,690 per month, and a nursing home stay in a semi-private room was a whopping $7,908 per month. Post-pandemic, those costs have risen even higher, making long-term care expenses a significant factor in seniors running out of money in retirement.
FLTCIP has limited underwriting requirements.
Underwriting, which typically includes questions about your health, family history, and pre-existing conditions, is one method insurance companies employ to manage their risk exposure and keep premiums from getting too high. Unlike most privately-administered long-term care insurance, federal employees experience more limited and less stringent underwriting. The limited underwriting aspect of FLTCIP means that the insurance company (John Hancock Life and Health Insurance Company) must contend with a riskier pool of enrollees. As a result, the company raised rates significantly. Costs for specific policies have more than doubled.
Insurance carriers don’t want to sell the coverage.
With over 267,000 enrollees, FLTCIP is likely the most extensive group LTC insurance program in the United States. Even so, insurance carriers aren’t exactly lining up to sell long-term care insurance to federal employees. Thus far, only John Hancock has been willing to underwrite FLTCIP, warning that the rates the company currently charges feds must increase to keep the initiative viable.
Are there alternatives to FLTCIP?
The current iffy status of the government’s long-term care initiative is troubling to many federal employees, especially those who understand they are likely to need at least some long-term care services as they age.
Some federal workers have seen nursing home costs and other long-term care services drain the retirement funds of their parents or grandparents. They may be counting on long-term care insurance to help them avoid similar situations.
Thankfully, expensive stand-alone “use it or lose it” long-term care coverage is not your only option. Some federal employees have discovered cheaper, more flexible ways to plan for long-term care needs.
One increasingly popular solution is to purchase a fixed index annuity (FIA) with an income rider. Although the FIA was designed primarily to help retirees create a stream of guaranteed lifetime income, some people find it a helpful tool for long-term care planning. The concept is that you pay the annuity premium, then let it sit and accumulate interest for a specific time. You purchase an income rider for an additional cost. Some carriers offer riders that will increase your benefits by a set amount each year. The longer you wait to access the rider, the more years you’ll experience increases. The FIA option might be a solution for those who won’t qualify for traditional LTC since this type of annuity has very limited or no underwriting.
Some annuities explicitly marketed as “long-term care annuities” may be effective solutions for some employees. I recently explained how such products work in another article, What is a long-term care annuity and should you have one?”
Numerous life insurance policies allow you to withdraw all or a portion of your death benefit to pay nursing home or other expenses. Provided you are healthy enough to qualify, life insurance can also be helpful in long-term care planning. Your financial advisor or agent can help you find a policy that best fits your unique situation.
Fish Bites: The future of FLTCIP is a bit nebulous at present. Some insurance experts believe that the OPM will extend the current suspension or that the carrier will not renew the contract.
FLTCIP’s woes are bad news for government employees counting on the program to help them offset increasingly costly long-term care needs. However, a proactive retirement income advisor can assist you in discovering other options that may be less expensive and more flexible, including LTC annuities and life insurance.
