Here’s a question that most people don’t want to think about: what is your plan for long-term care?
The harsh reality is that everything you’ve planned for in retirement could be wiped out if you don’t address this and have a plan when it happens. No one wants to admit they will need long-term care – NO ONE.
According to a recent report, 70% of adults over the age of 65 will need some kind of long-term care. As a federal employee, you now have a new long-term care insurance option available to you to help you address this very startling statistic.
The Office of Personnel Management (OPM) recently launched a new plan and rate structure under the Federal Long Term Care Insurance Program (FLTCIP). In this article, I’ll outline some of the changes under the new plan.
Effective as of October 21, 2019, the new plan – called FLTCIP 3.0 – is available to federal and postal service employees, annuitants, active and retired military members and qualified relatives. Current long-term care insurance participants aren’t impacted by the new plan or rate structure.
Those who are already enrolled in the 1.0 or 2.0 versions are not eligible to automatically convert to 3.0 version. If you wish to change to the 3.0 version, you must apply and go through full underwriting to qualify. Your new premium will be based on your age at the time of application to the 3.0 version.
If you decide to enroll in the FLTCIP 3.0 version, you’ll have three essential decisions to make: 1) daily benefit amount (DBA), 2) benefit period, and 3) inflation protection.
Decision #1 – Daily Benefit Amount (DBA)
The Daily Benefit Amount is the maximum per day that the policy will pay out when you go on claim.
- Choose between $100 – $450 per day (in $50 increments)
- Covered expenses are paid up to 100% of DBA for care, regardless of domestic location
Decision #2 – Benefit Period
The Benefit Period is how long they policy will pay out when you go on claim.
- Choose between 2 years, 3 years, and 5 years
Decision #3 – Inflation Protection Options
Inflation protection helps the value of your coverage keep pace with the rising costs of long-term care services.
You have two options to choose from:
- #1: Automatic Compound Inflation Option (ACIO)
- #2: Future Purchase Option (FPO)
Inflation Option #1: Automatic Compound Inflation
Your daily benefit amount automatically increases by 3% (compounded annually). See the graph below for an example.
Inflation Option #2: Future Purchase Option
- You will receive an offer to purchase additional coverage every two years to keep up with inflation
- There is no additional underwriting
- Your new benefits are priced at your attained age
- NOTE: If you decline three offers, you must provide evidence of your good health to resume receiving increases again
Maximum Lifetime Benefit (MLB)
Your maximum lifetime benefit (MLB) is the most benefit possible to be paid over your lifetime.
- $150* Daily Benefit Amount (DBA)
*Inflation protection works to help keep this number relevant over the years.
- 3-year benefit period (1,095 days)
- $150 DBA X 1,095 days = $164,250 MLB
The waiting period for the FLTCIP 3.0 is 90 calendar days. There are no incurred expenses required during this time, and it only needs to be satisfied once during your lifetime. There are no FLTCIP benefits paid during this time, except for hospice and respite services, and stay-at-home benefit (i.e. home modifications).
When Your Premiums Can Be Increased
Your premiums are set with the expectation that they will be sufficient, but they are not guaranteed. The premium for your group (for example, those with the same plan design or set of benefits) may only increase if it is determined to be inadequate. While the group policy is in effect, OPM must approve an increase in premium. Your premium may also increase if you voluntarily elect to increase your benefit (for example, with the Future Purchase Option). See the graph below for sample bi-weekly premiums.
Premium Stabilization Feature (PSF)
This new feature is an adjustable dollar amount that is calculated as a percentage of FLTCIP premiums paid. It’s designed to reduce the potential need for future premium increases. Under certain circumstances, the PSF may also be used to offset future premium payments and provide a “refund of premium” as a death benefit.
Things to Consider
While the focus of this article was the new FLTCIP 3.0 plan, there are things you should consider when selecting any long-term care insurance. Since there is no open season for FLTCIP, you can make these decisions at any time.
One of the most important considerations is the underwriting requirements and obviously, whether or not you qualify. There are also several products out there including traditional long-term care insurance (private or federal) versus combo products (such as LTC riders on insurance or annuities) that may help you best leverage your options.
When it comes to long-term care insurance, most people are afraid of paying too much for a program they may never use. However, remember that statistically, we know that 70% of us will end up needing some sort of long-term care. Be sure to explore the different functions of FLTCIP 3.0 and other private products to determine which is best suited for your family’s needs.
No matter where you are in your career, I would encourage you to at least consider the prospect of needing long-term care insurance. The right coverage can help protect your retirement savings and assets in the event you or your loved ones ever need long-term care.