Understand Your Long Term Care Insurance Options

Understand Your Long Term Care Insurance Options
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The Office of Personnel Management (OPM) recently announced the suspension of coverage applications under the Federal Long Term Care Insurance Program (FLTCIP) effective Dec. 19. The program will be closed to new applications for two years while OPM and the FLTCIP insurance carrier, John Hancock Life & Health Insurance Company, “assess benefit offerings and establish sustainable premium rates,” the announcement states.


Someone turning 65 years old today has an almost 70% chance of needing some type of long term care services, according to the Administration on Aging, part of the Department of Health and Human Services. Twenty percent of those who need long term care need it for longer than five years. Neither Medicare nor TRICARE For Life cover long term care, providing coverage only for short nursing home stays or limited in-home care when you require rehab or skilled nursing.


[RELATED: MOAA-Endorsed Long Term Care Insurance Program]


This sudden closure of the federal program is prompting many to question their future plans and quickly assess whether they should buy coverage before the deadline. Here are some things you should consider when you are evaluating long term care insurance options.


Know the Costs – and the Limits

Policies generally have a daily reimbursement rate as well as a maximum number of days or years that will be paid out; multiple the daily rate by the maximum number of days to determine the lifetime maximum benefit. Some policies also offer options like benefits that will increase with inflation.


As you might expect, the higher the reimbursement rate, the more years a policy will pay, and the more options you include, the more expensive the premium.


Rates will depend on your age and health, your gender (women live longer and thus have higher rates), your marital status, and amount of coverage.


[RELATED: MOAA Insurance Plans]


Know the Coverage Types

Different plans may offer different coverage, so read the fine print to make sure it applies your particular situation. Does the plan allow a choice of where to receive care (nursing home, adult day care center, hospice facility, at home)? Is caregiving by friends and family covered? Does it cover options supporting care at home, such as home modifications, medical equipment, and emergency medical response systems?


Know the Criteria

To trigger most plan benefits, you’ll likely need to prove you can no longer perform at least two activities of daily living (ADLs), such as bathing, dressing, eating, using the bathroom, or transferring from a bed or chair.


In addition, most policies have an “elimination period” of a certain length of time (generally 30 to 90 days) where you will have to pay out of pocket for long term care before the insurer starts reimbursing you.


[RELATED: MOAA's Long Term Care Cost Calculator]


Know Your Possible Premium Increases

Many plans are guaranteed renewable, which means that your coverage can’t be canceled based on a change in your health or age. But premiums can go up at any time: In fact, the federal plan is closing to to allow for a reassessment of premium rates. FLTCIP premiums went up most recently in 2016, when an overall average increase of 83% was implemented.


Know Your Tax Benefits

Long term care insurance can have some tax advantages if you are able to itemize deductions. Federal (and some state) tax codes let you count a portion of premiums as medical expenses. You’ll have to meet a certain threshold, and your policy would have to be labeled as tax-qualified.


[RELATED: MOAA’s Military State Report Card and Tax Guide]


Know Your Alternatives

The majority of long term care insurance options are like car insurance – you have coverage if you continue to pay your premiums, but if you stop paying those premiums, then your policy lapses and you lose coverage. And you may pay premiums your whole life but never use the policy.


Recently, though, “hybrid” policies have become popular. These policies combine long term care insurance with permanent life insurance policies such as universal life insurance. Policyholders can withdraw funds from the policy when they need it for long term care. And if the policyholder dies without needing care, then the heirs receive a death benefit.


One of the downsides to these hybrid policies is that they are much more expensive than traditional long term care policies. They are also not tax-deductible.


Another approach could be to self-fund your own long term care. This would involve researching typical long term care expenses in your area and setting aside those funds (preferably in an earmarked account). If you never need long term care, the funds are yours to leave as a legacy for your loved ones.


Know How to Prepare

Do your homework before creating any plan for long term care. If you are considering a long term care insurance policy, make sure you understand the coverage, the limits, and the elimination period. Compare quotes from multiple companies. And make sure that you pick an insurer that has a good rating from one of the agencies that rate the financial strength of insurance companies.


Need more help with your finances? Get the latest from MOAA, including publications and services exclusive to Premium and Life members, at MOAA.org/finance.


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About the Author

Lila Quintiliani, ChFC®, AFC®
Lila Quintiliani, ChFC®, AFC®

Quintiliani is MOAA's Program Director, Financial and Benefits Education/Counseling. She is a former Army Military Intelligence Officer as well as the spouse of an active-duty servicemember, and worked for over a decade at military installations as a personal financial counselor.