Is the Federal Long Term Care Insurance Program (FLTCIP) a Lemon or a Lifesaver?

Two weeks ago I had a conversation with a federal employee who was very upset. He, along with other federal employees, just had an average premium increase of 83% on their group long term care insurance.

A few minutes into our discussion he said he believed the entire long term care insurance industry was collapsing. I asked him why.  He said “if the largest employer in the country (the federal government) can’t provide reliable long term care insurance, who can?”

He thought that group long term care insurance was always better than an individual policy.  It’s not.

Here’s three reasons why:

"...individual long term care policies are often better than group long term care policies."

#1 Individual LTCi policies have more stable rates.
Individual long term care insurance policies often have more stable premiums. Forty-one states have have enacted a very strict “Rate Stability Regulation”.

Unfortunately, people who participate in group long-term care policies, like the FLTCIP and CalPERS, are usually not protected by these Rate Stability Regulations.

For example, many federal employees live in Virginia. Virginia enacted their Rate Stability Regulation on October 1st, 2003. Our clients who purchased John Hancock policies in Virginia after October 1st, 2003 are protected by this regulation. They have had either no rate increases or just one rate increase averaging 31%.  (The FLTCIP just had an average 83% rate increase in addition to the 25% rate increase the FLTCIP had in 2009.)

#2 Individual LTCi policies have better asset protection.
Most individual long term care policies can qualify for special asset protection under a “Public/Private Long Term Care Partnership Program”. These programs allow your assets to be protected from Medicaid spend-down even if your long term care insurance policy runs out of benefits. Forty-four states have enacted some type of long term care partnership program. Unfortunately, most group long term care policies do NOT participate in this program.
#3 Individual LTCi policies have better benefits for less premium (usually).
Individual long term care insurance policies often have large discounts for good health. They also have large discounts for couples who buy policies at the same time. Group policies (like the FLTCIP) usually don’t offer these discounts. Many of our clients are federal employees. In hundreds of cases our clients were able to buy an individual policy from John Hancock for less premium and with better benefits than the FLTCIP (which is underwritten by John Hancock).

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For many federal employees with severe chronic illnesses....

….the FLTCIP is the only long-term care insurance they could obtain. For them, the FLTCIP is not a lemon–it’s a lifesaver!
How could someone buy an individual LTCi policy from John Hancock and:

  • pay less premium than the FLTCIP,
  • get better benefits than the FLTCIP, and
  • have no rate increases (or a much smaller rate increase than FLTCIP)

The answer: Underwriting.

Although the FLTCIP may look like “a lemon” to some, it’s definitely NOT a lemon for tens of thousands of federal employees and retirees (including my mother-in-law).

The OPM wanted as many federal employees as possible to be able to obtain long term care insurance coverage through the FLTCIP. To achieve that goal the OPM had “open enrollment” periods in 2002, 2009 and just recently in 2016. During the “open enrollment” periods, underwriting was lenient. Many federal employees who couldn’t have qualified for an individual long-term care insurance policy, were able to qualify for the FLTCIP because the underwriting was very forgiving.

The OPM/FLTCIP had to weigh their options. Would they prefer a policy that was priced lower, but had tough underwriting? Or would they prefer to insure as many federal employees as possible at the risk of higher premiums and possibly higher rate increases? They chose the latter.

For many federal employees with severe chronic illnesses, the FLTCIP is the only long-term care insurance they could obtain. For them, the FLTCIP is not a lemon–it’s a lifesaver!