Long-term care insurance alternatives
Long-term care refers to the help or care that people with chronic and debilitating illnesses and other conditions need on a daily basis—over a rather lengthy period.
Long-term care ranges from assistance with simple activities (such as bathing, dressing, and eating) to much more high-level skilled care that nurses, therapists or other professionals provide. Long-term care can even include the supervision you, or someone you love, might need at some point in life—due to physical injuries to the brain, spine or severe cognitive impairments such as Alzheimer’s disease.
Fibromyalgia, Lyme disease, multiple sclerosis, arthritis, heart disease, and mental illnesses are among the many other conditions that can require long-term care.
For about 280,000 federal employees who were enrolled in the Federal Long Term Care Insurance Program (FLTCIP) since 2015 or earlier, November 1, 2016, hit hard. Employees saw drastic premiums increases.
In 2016, the U.S. Office of Personnel Management (OPM) allowed John Hancock Insurance, the only insurance company to submit a bid, to administer the FLTCIP. Under this relatively new contract, OPM announced large premium increases starting November 1, 2016 for most of the program’s 274,000 enrollees at an average increase amount of $111, or 83 percent.
According to oversight committees, FLTCIP enrollees were informed of premium increases on July 18, 2016, and were given until September 30, 2016 to decide on their long-term care package. Their options included terminating their policies, reducing coverage, or keeping it as it was by paying the increase.
According to media reports relied on by the Subcommittee on Government Operations, which published these facts, “more than 96 percent of FLTCIP enrollees who had responded as of October 19 kept some form of coverage. Less than four percent of enrollees decided to abandon the program altogether.”
The majority of these people may have felt that the increase was reasonable, and this undergirded their decisions to maintain coverage through FLTCIP. Despite feeling cheated, however, it is more likely that most of the employees who stayed with FLTCIP were not informed of other options or how to get them—and, therefore, staying was just easier.
Don’t stay merely out of convenience. If you’re one of these affected federal employees, which in total accounts for about 10 percent of all federal employees, you were probably a bit upset about the news of skyrocketing premiums. Take the time to look for alternatives, and pick a plan that gives you the most bang for your premium buck.
Keep These Things in Mind
Before you decide whether to continue staying in the FLTCIP as provided, consider the following. Depending on your answers, changing your plan to select more cost-effective options might work successfully. For others, staying with the current plan could offer the best options. The point is not to leave, but simply to know more:
The AARP produced the following points to consider when choosing a long-term care insurance policy for the first time, as well as for when you decide to change your current plan or maintain it:
Your age and health: Policies cost less if purchased when you’re younger and in good health. If you’re older or have a serious health condition, you may not be able to get coverage—and if you do, you may have to spend considerably more.
The premiums: Will you be able to pay the policy’s premiums—now and in the future—without breaking your budget? Premiums often increase over time, and your income may go down. If you find yourself unable to afford the premiums, you could lose all the money you’ve invested in a policy.
Your income: If you have difficulty paying your bills now or are concerned about paying them in the years ahead, when you may have fewer assets, spending thousands of dollars a year for a long-term care policy might not make sense. If your income is low and you have few assets when you need care, you might quickly qualify for Medicaid. (Medicaid pays for nursing home care; in most states, it will also cover a limited amount of at-home care.) Unfortunately, in order to qualify for Medicaid, you must first exhaust almost all your resources and meet Medicaid’s other eligibility requirements.
Your support system: You may have family and friends who can provide some of your long-term care should you need it. Think about whether or not you would want their help and how much you can reasonably expect from them.
Your savings and investments: A financial adviser—or a lawyer who specializes in elder law or estate planning—can advise you about ways to save for future long-term care expenses and the pros and cons of purchasing long-term care insurance.
Your taxes: The benefits paid out through a long-term care policy are generally not taxed as income. Also, most policies sold today are “tax-qualified” by federal standards. This means if you itemize deductions and have medical costs in excess of 7.5 percent of your adjusted gross income you can deduct the value of the premiums from your federal income taxes. The amount of the federal deduction depends on your age. Many states also offer limited tax deductions or credits.
These significant considerations can help you determine whether your premiums through the FLTCIP are exorbitant for your needs or actually right (based on common market values) for your needs.
Even If You Choose to Stay…
If you choose to remain in the current FLTCIP, you have options.
- First, you can keep the policy you currently have and continue paying the new premium amount.
- Second, you can reduce the benefits you have by half, which will result in a less costly premium amount—reducing the current costs by half.
- Third, you can reduce your benefits to the point where your premium would stay the same as it was before the increase.
More Things to Consider
A life insurance policy can help pay for your long-term care. You may no longer have money-making power due to poor health. By the time you need your policy and the services of your long-term care, you will more than likely approach the end of your life. Remember that your life insurance company may let you have access to all or part of the amount of the policy’s death benefits before you die.
If you die after using half of the death benefit, then your heirs will get the other half. If you don’t use any of it, then your heirs will get the full death benefit amount. This should remain in your considerations when choosing to stay with FLTCIP or find an alternative.
Furthermore, you might also consider using an income rider in a fixed index annuity. A fixed index annuity ensures you a guaranteed stream of income throughout the remainder of your life, long past your inability to work due to age or illness. Let that income sit and gain interest credits. Income riders are available to you for an additional cost.
In the event that these solutions don’t address each of your concerns, remain aware that other outside options may work for you. See the information provided by AARP below. It offers a useful snapshot in other, potential options.
Individual plans: Most people buy long-term care policies through an insurance agent or broker. If you go this route, make sure the person you’re working with has had additional training in long-term care insurance (many states require it) and check with your state’s insurance department to confirm that the person is licensed to sell insurance in your state.
Plans offered by organizations: A professional or service organization you belong to might offer group-rate long-term care insurance policies to its members. Just as with employer-sponsored coverage, study your options so you’ll know what would happen if coverage were terminated or if you were to leave the organization.
State partnership programs: If you purchase a long-term care insurance policy that qualifies for the State Partnership Program you can keep a specified number of assets and still qualify for Medicaid. Most states have a State Partnership Program. Be sure to ask your insurance agent whether the policy you’re considering qualifies under the State Partnership Program, how it works with Medicaid, and when and how you would qualify for Medicaid. If you have more questions about Medicaid and the partnership program in your state, check with your State Health Insurance Assistance Program.
Joint policies: These plans let you buy a single policy that covers more than one person. The policy can be used by a husband and wife, two partners, or two related adults. However, there is usually a total or maximum benefit that applies to everyone insured under the policy. For instance, if a couple has a policy with a $100,000 maximum benefit and one person uses $40,000, the other person would have $60,000 left for his or her own services. With such a joint policy, you run the risk of one person depleting funds that the other partner might need.
Never Pick an Option out of Convenience Alone. Stay Informed.
Whether to stay with or leave the FLTCIP is a personal decision. When you choose your options for the future, you have to operate with your best interests, and the interests of those you love, in mind. But never choose, or stay with, an insurer out of convenience alone. Research your options. Make sure that the premiums you pay guarantee the best end-game options for you—those that best fit your needs.
If you have questions about how to pick an optimal plan, you’re not alone. The experienced long-term care lawyers at the top-rated insurance law firm DarrasLaw can help. Please reach out to us for a free policy analysis or consultation to discuss your options. Call us today at (800) 458-4577 or contact us online.