If you or your spouse is age 50 or older and you don’t already own high-quality long-term care insurance, you should carefully consider it. If you do own long-term care insurance, you should periodically consider your benefits, premium and whether a better alternative might be available. In either case, you should be aware that changes may be coming to the Federal Long Term Care Insurance Program.

The federal program is available to all current federal employees, federal annuitants and certain family members. With its clout in the insurance marketplace and with the Office of Personnel Management’s representation of participants’ interests, the federal program should serve as the benchmark against which other options should be considered. It’s not necessarily the best solution for everyone, but it’s the place to start shopping.

The current contract, with private insurance companies John Hancock Life and MetLife, expires April 30. The terms of group coverage – benefits offered and premiums – can change at the discretion of the insurer and the program administrator, OPM. Participants must either accept those changes or leave the program.

The federal program has held its benefits and premiums steady since its introduction in 2002. But individual policyholders over the past 10 years have seen insurers and policies come and go, rates increase for the benefits provided, and big increases in premiums they had hoped would remain constant.

Participants in both group plans and holders of individual policies should expect change to be the norm. The comprehensive policies being sold today have been around for only about 15 years – not much of a track record for policies that aren’t likely to pay benefits for 20 years, or more in many cases.

Change is part of the process of figuring out what happens as people age and need care, and how much it will cost. While insurers are learning whether the predictions they use in calculating their premiums are valid – they frequently are not – it will take decades to build a reliable database of actual results.

Because long-term care insurance is a relatively new product and because insurance companies are relatively inexperienced with it, it is important to be cautious when purchasing it. Policies and premiums that seem too good to be true have often proven to be just that.

The most important and first thing to consider is the company writing the policy. It should be large, with a long history of competent management and a demonstrated commitment to providing long-term care insurance. You shouldn’t consider a policy from a company that isn’t at or near the top of the list in size, financial strength and longevity in underwriting long-term care insurance. Fortunately, the federal program
currently offers insurance from sources that meet these criteria.

But, while the federal program’s coverage is good, it’s not as good as it should be.

I think the program has two key weaknesses that make it vulnerable to competition from the retail market.

First, the federal program limits the periodic benefit – the daily or weekly expense reimbursement limit – for care at home to 75 percent of the benefit for care in a facility, such as a nursing home. Most people would rather remain at home, and care there can be significantly more expensive than care in a facility.

Second, the federal program does not allow spouses or other partners to share benefits with each other if needed. This option is available – and popular – on the retail market.

Since it is much less likely that both members of a couple will spend extraordinarily large amounts of money on long-term care expenses during their lives than that either one of them will, it makes sense to consider buying two smaller, less expensive policies and sharing them.

Hopefully, any changes coming with the next Federal Long Term Care Insurance Program contract award will include new provisions to eliminate these shortcomings.

Written by Mike Miles
For the Federal Times
Publication April 13, 2009