Recently announced changes in the Federal Long Term Care Insurance Program refocus attention on long-term care insurance for many current and former federal employees.

The program provides term insurance – that is, participants pay premiums as they go for coverage – that promises to help cover the cost of any long-term custodial care needed while the coverage is in effect.

Many participants enrolled over the past seven years with the expectation that their premiums would remain fixed, even though their benefits would increase to help keep pace with inflation in the cost of long-term care. Now they’re being told their premiums and/or benefits will change. Some participants face premium increases of as much as 25 percent starting in January. Depending on the participant’s circumstances, a substantial increase in cost may make the insurance unaffordable or unattractive.

Participants have options which, in addition to shopping around for a better deal from outside sources, include reducing the amount of coverage they carry to reduce the premium.

Unless you are uninsurable, long-term care insurance is not an all-or-nothing proposition. Properly configured, you get what you pay for and some insurance is better than none. Can’t afford coverage for $300 per day in expenses with no lifetime limit on benefits you’ll receive? Well, $200 per day with a $365,000 lifetime benefit limit is cheaper and will still cover the bulk of the long-term care risk you face.

Even $100 per day paid out over two or three years is better than nothing, and it costs a fraction of what the Cadillac plan costs.

If you’re concerned about cost, whether you already have coverage or are considering it, you’ll need to determine the best way to configure the benefits in order to make the most of the money you’ll spend. The basic rules are:

  • Don’t waste money trying to insure against every possible contingency. Keep your premiums as low as you can while covering as much risk as possible, but never more than about 90 percent of the risk. For most people, this means buying a daily benefit limit equal to the average cost of care in their area and a five- to six-year benefit period.
  • Avoid the bells and whistles. Favor policies that allow you to avoid the expensive extras that don’t add much in the way of protection. This means avoiding things like return-of-premium, restoration-of-benefits and paid-up insurance riders. What you want is solid protection against catastrophic expenses.
  • Consider insurance only from a large, financially stable insurer with a good track record in long-term care insurance and reasonable premiums. If it sounds too good to be true, then it probably is. Historically, premiums that are in line with the overall market have proven to be a better bet than those that are too low for the benefits offered.
  • Elect the most aggressive automatic inflation protection option if you’re under age 70. If you’re age 70 to 79, consider the “simple” automatic inflation protection option, if available. If you’re age 80 or over, you’re probably better off buying more of a daily benefit up front and foregoing any automatic inflation protection option.
  • For benefit periods of three years or more, favor the daily benefit limit over additional years of coverage. This means that for the same premium, $200 per day for three years is a better bet than $150 per day for five years. Conversely, if you’re trying to cut costs, cut the benefit period before you cut the daily benefit limit until the benefit period reaches three years.
  • Don’t pay extra for weekly or monthly benefit limits if you can choose a daily benefit limit. This is not worth the cost in most cases.
  • Whenever possible, buy coverage that can be shared with your spouse or partner. This allows each of you to buy shorter benefit periods and cover more risk for the same cost as separate policies.
  • When in doubt, go with the less expensive alternative.

These basic recommendations are intended for people in good health and without strong family histories of debilitating conditions like Alzheimer’s disease. While they will help you make better decisions about long-term care insurance, you should use them only as a starting point for thorough planning and analysis.

Written by Mike Miles
For the Federal Times
Publication June 8, 2009