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Federal Employees News Digest : Oct. 29, 2012
October 29, 2012 Vol. 62, No. 16 7 Visit us on the Internet at www.FederalDaily.com The year 2012 may be remembered as the end of "bargain" pricing for individual long-term care (LTC) insurance policies. Those federal employees who are in the market for purchasing an individual LTC insurance policy from a private insurance company should consider as soon as possible their options for purchasing LTC insurance. In recent years, there has been much upheaval in the individual LTC insurance marketplace. Earlier this year, Prudential Insurance Co. discontinued sales of individual LTC insurance policies and the Unum Co. discontinued group LTC insurance sales. Between 2009 and 2011, Alliance and Metropolitan Life Insurance Cos. discontinued the sale of individual LTC insurance policies. Those insurance companies which have remained in the individual LTC insurance market have enacted large premium increases for newly-issued policies. These increases are an indication of the fear that LTC insurance carriers have longer life spans, low lapse rates, and higher claim rates will affect the profit- ability from LTC insurance sales. What do these changes in the LTC insurance market mean to federal employees? It is important to note that full- and part-time employees are eligible to apply for the federal government-spon- sored group LTC insurance program, the Federal Long Term Care Insurance Program (FLTCIP). Applications can be downloaded at www.ltcfeds.com. Employees can submit an application at any time. FLTCIP applicants must qualify for the insurance by furnishing evi- dence of mental and physical insurability. The FLTCIP has been in existence since 2002. Premiums for exist- ing FLTCIP policyholders may have increased in 2009 when the Office of Personnel Management negotiated a new seven-year con- tract with the FLTCIP administrator, LTC Partners, Inc. Premiums will not increase until at least 2016, at which time the current LTC Partners. contract will expire and OPM will negotiate a new contract. Fortunately, there is a way of avoiding possible LTC insurance pre- mium increases; namely, by reducing policy benefits. For example, an LTC policyholder can reduce the amount of the "benefit period"-- the amount in years the insurance company will pay benefits. A policy--- holder who initially elected and was approved for lifetime benefits can at any time elect a limited benefit period such as five years. Another way is by reducing the amount of the "inflation" rider. "Inflation" is the amount of the annual automatic increase in a policyholder's daily benefit from one year to the next. Many FLTCIP policyholders in 2009 avoided the scheduled premium increases in their FLTCIP policies by decreasing the amount of their inflation. For example, they reduced their inflation amount from 5 percent to 4 percent . While reducing one's LTC insurance benefits is not a perfect solution, almost any LTC insurance is better than no LTC insurance. Many financial experts are rec- ommending that the need for some kind of LTC insur- ance planning remains greater than ever. According to the National Clearinghouse for Long Term Care Information, 70 percent of individuals over age 65 will require prolonged LTC at some point during their lives. With many federal employees expected to retire over the next five to 10 years, LTC planning is extremely important. It is something that employees especially close to retirement need to seriously think about. Employees should consider these facts: The average cost of a year of LTC in the United States during 2012 is about $72,000. LTC costs have been rising at about 4.2 percent per year. Over 25 years that means that a 45-year-old employee today could have LTC costs of about $363,000 annually by the time they are age 85. The average stay in a nursing home is 2.5 years, which could cost close to $900,000. Contrary to what some individuals may believe, Medicare and health insurance do not pay for LTC. While Medicaid does cover LTC expenses, there are a number of problems associated with Medicaid, including having to be impoverished to qualify and having limited choices as to which LTC facility an individual is treated in. Moreover, with 80 million baby boomers---the overwhelming major- ity without LTC insurance---becoming age 65 at the rate of 10,000 per day, it is unclear how Medicaid will be able to continue paying for their future nursing home expenses. An alternative to buying LTC insurance is "self-insurance." The idea behind "self-insurance" is that a prospective LTC policyholder can, for example, increase their retirement savings and, if necessary, use some of their savings for LTC rather than pay increasingly higher LTC insurance premiums. For example, employees could set aside a portion of their Thrift Savings Plan or IRAs for possible future LTC. The problem with self-insurance is that it requires individuals to set aside or save more money than many individuals can realistically afford, and invest it "appropriately" in order to pay for future LTC expenses. Investing it appropriately means to keep pace with the almost double-digit annual increases in LTC costs The next "Informed Investor" column in this two-part series on LTC will discuss another alternative to buying an LTC insurance policy. This alternative is in the form of a combined life insurance- LTC insurance policy commonly called a "hybrid" policy. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor With rising LTC insurance costs, employees need to make choices: Part I
Oct. 22, 2012
Nov. 5, 2012