Over the last nine months, the Federal Long Term Care Insurance Program (FLTCIP) has made some major announcements with regard to new applicants to the program and to existing FLTCIP policyholders.
In December 2022, the FLTCIP announced that starting December 19, 2022 and through December 19, 2024, new applications to the FLTCIP were suspended. No federal employees and retirees, postal service employees and retirees, uniformed service members, eligible family members (parents, parents-in-laws, and adult children over the age of 18, could apply to the FLTCIP.
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In addition, current FLTCIP enrollees cannot apply to increase their policy benefits (for example, larger daily benefit amount or longer benefit period).
The reason behind the program suspension was to allow the FLTCIP to reevaluate its program and premium structure. In so doing, FLTCIP hopes to start to attract more applicants to the program in late December 2024.
Those federal employees and retirees already enrolled in the FLTCIP remain enrolled in the program and continue to pay their FLTCIP premiums. If they do incur a need for long-term care (LTC) benefits, they can apply for their benefits.
But as it has happened every seven years since the FLTCIP started in 2002, FLTCIP enrollees are being sent letters notifying them of premium rate increases taking effect on January 1, 2024.
The letters also present personalized options to help mitigate or eliminate the impact of the premium increases. FLTCIP enrollees have a November 9,2023 deadline in which they can select changes to their policy benefits that will decrease or eliminate the premium increases.
This column presents information about the 2023 FLTCIP Enrollee Decision Period. Also presented are why an increasing number of federal and postal service employees and retirees may want to consider “self-insuring” as a means of supplementing their FLTCIP coverage rather than pay what for many enrollees are finding to be unaffordable additional premiums in order to keep their FLTCIP long-term care benefits.
General Information About the Enrollee Decision Period
In the FLTCIP Benefit Booklet, there is a section entitled “When We May Increase Your Premium” which states that the LTC Partners, LLC receives the right to increase an enrollee’s premium in the future.
However, it is important to note that the LTC Partners cannot force an enrollee to drop the FLTCIP insurance and/or raise his or her premium because of the enrollee’s advancing age, declining health status, or for any other reason related solely to an enrollee’s personal circumstances and health. LTC Partners may only increase an enrollee’s premium if the enrollee is among a group of enrollees whose premium is determined to be inadequate. OPM must approve the increase in premium.
Most FLTCIP enrollees are impacted by the current premium increase effective January 1, 2024. Any employee or retiree enrolled in versions FLTCIP 1.0, FLTCIP 2.0, or FLTCIP Alternative Insurance Plan (AIP) is affected by the increase in premium costs.
There may be exceptions to the premium increase, depending on an enrollee’s age when he or she initially applied for the FLTCIP and when the enrolled was approved for coverage. Any enrollee excluded from the premium increase will also receive a letter indicating no premium increase at this time.
How Much of An Increase Will There Be in An FLTCIP Enrollee’s Premiums?
The FLTCIP premium increase will take effect on January 1, 2024. The exact amount of the premium increase can vary based on an FLTCIP enrollee’s group. Each group’s increase is determined based on a combination of:
• Benefit options including an enrollee’s benefit period and/or inflation protection option.
• Issue age – the age when the enrollee applied and was approved for coverage.
• The plan in which an enrollee is currently enrolled in – FLTCIP 1.0, FLTCIP 2.0 or FLTCIP AIP.
The following two examples illustrate the options that LTC Partners is offering FLTCIP enrollees affected by the premium increases in options to mitigate or eliminate these premium increases:
Example 1. Cynthia, age 55, is a federal employee and has been enrolled in the FLTCIP since 2010. Her benefits include currently a $225 daily benefit, a 5-year benefit period, and 4.0 percent inflation coverage. Cynthia’s FLTCIP premium is $300 per month, or $3,600 per year.
Cynthia received her Enrollee Decision letter in September 2023 notifying her that his FLTCIP premium will increase 30 percent to $4,680 per year ($390 per month) if she wants to retain her current FLTCIP benefits. Cynthia’s Enrollee Decision letter also gives Cynthia the option to decrease her inflation coverage to 1.0 percent from 4.0 percent. If she agrees to that option, then Cynthia’s FLTCIP premiums will not increase and remain at $300 per month (at least for the next 7 years).
Example 2. Charles, age 80, is a retired federal employee who applied for and was accepted into FLTCIP when the program started in 2001 and Charles was 58 years old. When he was initially enrolled, his benefits were as follows: $200 daily benefit, 5-year benefit period, and 4 percent inflation protection. Charles paid during the first seven years of coverage (2002- 2009) a premium for his FLTCIP coverage of $4,200 per year.
Charles received an Enrollee Decision Period letter in 2009 notifying him that his FLTCIP premiums would double to $8,400 (for the next 7 years, 2010 -2016) unless he opted to reduce her benefits. He did. He agreed to reduce his inflation protection to 1 percent, thereby increasing his annual premium by $1,000 to $5,200 per year for the period 2010 -2016. He received the next Enrollee Decision letter in July 2016 at which time he dropped his inflation coverage altogether. Charles’ annual premium ($5,200) remained the same for the period 2017-2023.
His latest Enrollee Decision letter came in September 2023 in which time Charles was told his premiums would increase 60 percent to $8,320. Charles was given the following options in the September 2023 Enrollee Decision letter: (1) Receive a “paid-up-limited benefit, no future premiums due option”. His “paid-up, limited benefit” is based on the cumulative premiums he has paid over the previous 22 years (see below for more information on this option); or (2) Decrease his benefit period from 5 years to 3 years. Charles elected to decrease his benefit period to 3 years. His premium will remain at $8,320 per year.
What is the Paid-Up Limited Benefit, No Future Premiums Due Option, and How Does It Work?
The paid-up, limited benefit, no future due option is referred to as the “contingent benefit upon lapse” as discussed in the FLTCIP Benefit Booklet. It is a consumer protection feature that is built into an enrollee’s FLTCIP coverage and available under certain conditions when a premium increase occurs. The option allows an enrollee to stop paying premiums and provides paid-up coverage with a reduced level of benefits.
When an FLTCIP enrollee chooses this option, the enrollee stops paying premiums. However, his or her maximum lifetime benefit will be limited to an amount equal to his or her cumulative FLTCIP premiums paid through January 1, 2024, or 30 times the Daily Benefit Amount under his or her coverage, whichever is greater. Returning to Example 2 with Charles:
Charles elected the paid-up limited benefit, no future premium benefit. When his election took effect on January 1, 2024, Charles’ daily benefit was $282 and with a 5-year benefit period. He paid a total of $102,200 in premium since he enrolled in the FLTCIP in 2001. His current FLTCIP benefits are: $282/day times 5 years (1,825 days) which equals $514,650. Charles stops paying the premiums under the paid-up limited benefit.
If Charles has to file a claim in the future for her LTC needs, he only has $102,200 in benefits (the amount of cumulative premiums he has paid in 22 years). Currently, the average cost of a semi-private room in a nursing home in the U.S. is $102,000 per year. If Charles had to go to a nursing home, then he would have only enough in FLTCIP benefits to pay for a one-year stay. That is the case whether Charles has to go to a nursing home in one year, five years, 10 years or longer. With LTC costs increasing on the average 4 to 8 percent per year, Charles’ paid-up limited benefit, no future premium due option is currently not worth much, and less every year in the future.
Needless to say, the paid-up limited benefit no future premium due option has no value for an FLTCIP enrollee who wants to keep most of his or her earned LTC benefits but unfortunately cannot afford to pay the increasing FLTCIP premiums. The alternative is to elect (during the Enrollee Decision Period ending November 9, 2023) reduced benefits (for example, decreasing the benefit period from 5 years to 3 years like Charles in Example 2 and/or reducing the amount of inflation coverage) thereby paying the same premium.
In order to make up for his lost lifetime benefits resulting from a decrease in benefit period, Charles may want to “self-insure” for his decrease in lifetime benefits. For example, Charles could make additional withdrawals from TSP and IRA retirements. Ideally, Charles has a Roth TSP and/or a Roth IRA in which withdrawals are tax-free.
Given this background and current information regarding the FLTCIP, the following are some recommendations for current enrollees in the FLTCIP as to what they should and should not elect when they receive their Enrollee Decision Period letters.
1. They are advised not to elect the “paid-up, limited benefit, no future premiums due” option. As explained above, this option will result in a significant reduction in benefits (50 to 75 percent) and completely favors the LTC Partners.
2. If the Enrollee Decision Period letter shows a premium increase of more than 25 percent, an enrollee is advised not to accept that increase and instead to accept a reduction in benefits – benefit period and/or inflation protection. In order to not lose any of the LTC benefits, the enrollee is advised to consider the difference between what they are paying now in premiums versus what they would pay had they accepted the premium increase in the Enrollee Decision Period letter. Investing in a way that is as tax-efficient or better, tax-free, such as in a Roth IRA or the Roth TSP.
3. Enrollees should not stop paying their FLTCIP premiums. If they do, their FLTCIP insurance will lapse and they will have no future LTC benefits nor will they receive a refund of previous paid premiums.
4. For those federal employees and postal service employees, and uniformed members who are new employees or mid-career, and contemplating whether or not to apply to the FLTCIP when enrollment reopens in late December 2024, perhaps “self-insuring” may be a better strategy. This means for example contributing more dollars to the Roth TSP and/or to Roth IRAs, or if eligible contributing more to a Health Savings Account in which tax-free withdrawals can be made to pay qualified LTC expenses.