Long Term Care Insurance: Do Your Homework

Long term care insurance has been a source of frustration for some who did not anticipate a significant increase in premiums last year. If you are considering signing up for this insurance plan, do your homework about the costs and potential benefits.

In an undated letter sent to federal retirees (and received last week by a retiree who brought it to my attention), William Zielinski, the Associate Director of Retirement Operations for OPM, had good things to say about the Federal Long Term Care Insurance Program.

Among his statements were:

As a federal retiree, no doubt you are keeping a close eye on your finances and making every effort to protect your hard-earned savings through your retirement years. That is why we want to make sure you are aware of a program that can help provide protection against the high costs of long term care.

The good news is that you can protect yourself – and your income and assets – with coverage from the Federal Long Term Care Insurance Program (FLTCIP). Once you are enrolled, it can help pay for long term care you receive in your home, in an assisted living facility, nursing home, or in other settings.

The FLTCIP is underwritten by John Hancock Life & Health Insurance Company, and oversight for the program is provided by the U. S. Office of Personnel Management (OPM).

On the other hand, the following items have been in the news regarding long-term care and long-term care insurance over the last year or so.

  • In early 2010 John Hancock, after having received approval from OPM, raised
    federal long term care insurance premiums by as much as 25% for those who had enrolled in FLTCIP during the initial open seasons.

In her October 14, 2009 testimony to Congress about the pending rate
hike, NARFE President Margaret L. Baptiste stated: “In 2002 when FLTCIP was launched, eligible individuals were assured that the program would have ‘premium stability.’   The likelihood of a rate hike was downplayed in promotional materials”

Later in her remarks while discussing the future of FLTCIP, she went on to say: “A long-term care insurance program with a 25 percent rate hike — where premium increases were
marketed as unlikely – is a much tougher sell.  No one wants to be burned again. NARFE is put in the position of wanting to encourage our members to plan for their future, while having great difficulty recommending a product whose premiums are not necessarily predictable or affordable.”

  • In September of 2010, as reported in the National Underwriter John Hancock
    announced that it would ask state insurance regulators for permission to increase premiums by an average of 40% for most of its policy holders. Though this rate hike will not apply to current FLTCIP enrollees, anyone who can do the math can see that there is a 15% gap between the increase Hancock and OPM imposed on federal enrollees and what Hancock is seeking from state insurance regulators. What this will mean when the current FLTCIP contract comes up for renewal is anyone’s guess.
  •  In September of 2010, also according to the National Underwriter, Hancock was
    suspending sales of new group LTC products.
  •  In November of 2010, MetLife (one of the original FLTCIP insurance providers) announced it would halt the sale of new long-term care insurance policies.
  •  Marianne Harrison, president of John Hancock Long-Term Care Insurance was quoted in the January 2011 edition of Kiplinger’s Retirement Report: “This won’t be a viable product if we do not have sufficient funds to pay claims in the long term.”
  •  In the article referenced in the previous bullet, a financial planner stated that he advises clients to expect a 30% to 40% rate increase for long-term care insurance at some point in the future.

What does this mean to federal employees and retirees who are considering purchasing long-term care insurance?

One thing it means is that LTC insurance is still in a state of flux. Employees and
retirees should consider their likelihood of needing such coverage. They should also do their homework and investigate the costs and benefits of LTC coverage extensively before investing
in any coverage (either FLTCIP or a private policy).

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at johnfgrobe@comcast.net to discuss schedules and costs.

About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.