As the Federal Long-Term Care Insurance Program (FLTCIP) returns, many enrollees find themselves facing tough decisions about their long-term care coverage. Brian Swerdlow
by Brian Swerdlow
According to research from The National Active and Retired Federal Employees Association (NARFE), most FLTCIP participants are seeing substantial premium increases, some as high as 86%! These spikes serve to highlight the financial strain and uncertainties with which program enrollees must contend.
Currently, FLTCIP serves around 267,000 civilian federal employees and military members. In 2024, it experienced its first premium rate increase in over seven years. Due to the sudden and substantial nature of this rate increase, some enrollees report feeling blindsided and pressured to re-evaluate their long-term care coverage options.
Claims frequency, increased lifespans, higher administrative costs, and program expenses are a few of the reasons cited by The Office of Personnel Management (OPM) to justify their decision to increase rates dramatically. However valid these reasons may be, they don’t make it any easier for enrollees.
As you’re probably aware, having some type of long-term care insurance is a crucial consideration for retirees and those about to retire in both the private and public sectors.
Statistically, nearly 7 out of 10 Americans over age 65 will require long-term care services at some point in their lives. Costs for these services can range from $5,148 to over $9,000 per month.
LTC expenses continue to rise with no indication they will ever go down. For this reason, and because they know Medicare does not pay most long-term care expenses, FLTCIP participants are loathe to cancel their policies, even when premium increases put a strain on their budgets.
Are annuities with LTC “riders” a potential alternative?
Many federal workers seek alternative solutions to offset the financial burden of FLTCIP premium increases. A choice that’s become increasingly popular in the last few years is to purchase a specially designed annuity featuring what’s known as a “long-term care rider.”
Annuities are insurance contracts that convert a lump-sum premium payment into a guaranteed stream of income over a specified period. Riders, often available for an additional fee, may be added to these annuities. By adding riders, an annuity specialist can customize the contract to meet specific financial needs and goals.
Deferred annuities providing long-term care options are sold by many insurance companies, typically to individuals up to the age of 85. These products work by trading a lump sum premium payment for regular monthly income. Many “long-term care” annuities set up a dedicated account for long-term care expenses. This account is separate from a cash fund utilized for other purposes.
When you purchase one of these annuities, you own the benefit and purchase it upfront. This ensures you’ll have money for long-term care when you need it. If you wind up never needing long-term care, you can pass the annuity’s value to your beneficiaries.
Typically, long-term care annuities have specific requirements you must meet before you can access your funds, including health criteria and the ability to prove your need for assistance with activities of daily living. (ADL)
Once you’ve met those criteria, you can access your long-term care account immediately. The monthly payout for this type of annuity is often a multiple of the annuity’s regular income stream. There are also riders you can add to increase the monthly payments, potentially doubling or even tripling it for a certain period.
Deferred long-term care annuities offer several advantages, including immediate access to your cash and the ability to create a legacy for loved ones. However, they may also have tax implications and could affect some peoples’ Medicaid eligibility. Also, these types of annuities may not cover all your LTC expenses.
Summing it up:
The return of FLTCIP and its substantial premium rate increases means federal employees have critical decisions to make regarding long-term care.
While FLTCIP remains a viable choice for many, annuities with LTC riders offer an alternative worth exploring. Ultimately, individuals should prioritize transparency, communication, and informed decision-making to navigate the complexities of long-term care coverage effectively.
In addition to deferred long-term care annuities, there are other products with long-term care riders, such as fixed or indexed annuities or immediate annuity contracts. Each of these products has pros and cons and various levels of complexity. Consulting with a financial advisor who is an expert in both federal benefits and annuity products ensures that you will get the information you need to make the right decision.
