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Federal Long Term Care Premium Rate Increase

Mason & Associates recently became aware of a potential Federal Long Term Care premium rate increase in 2023.  Per the letter we received from clients, the reason for the increase is emerging program experience.  We called Federal Long-Term Care and received similar information from a recorded message.  The recorded message provided additional information that the premium increase would not impact those receiving long term care benefits (claimants) or those enrolled in FLTCIP 3.0.  The message further indicated there may be adjustments to the premium stabilization feature for those enrolled in 3.0.

The purpose of this letter is a warning to those enrolled in plans 1.0 and 2.0 and the details of the reasons behind the increase are vague.  Our clients with private sector insurance policies through companies like John Hancock and Genworth received similar letters over the last decade and we assume for similar reasons.  Our understanding is that long term care premiums are rising for two main reasons. First, those who purchase long term care contracts tend to keep them. It is our understanding that insurance companies anticipated that a certain percentage of those who acquired a long-term care policy would drop it in the future (lapse rate). Second, because more people have kept their contracts there are also more claims than originally anticipated. We do not believe that an increase in medical expenses is a reason for a rate increase. Long term care contracts are issued with a daily benefit amount (sometimes monthly on a private contract). Thus, the increase to medical expenses means the daily benefit amount may provide less coverage than before but the cost of medical expenses doesn’t change the amount of future benefits payable under a contract.

Although we can’t say for sure, we believe those with the richest benefits will be the ones impacted the most by the potential premium increase. If history is any indication, those with lifetime benefits and those with the 4 and 5 percent automatic compound inflation option (ACIO) will be impacted the most. This doesn’t mean that those with the future purchase option (FPO) will not be impacted.

At this time, there is nothing we can do except wait and see.  The premiums will be higher than what you are currently paying but will be lower than what it would cost to acquire a similar policy in 2023. The default recommendation for many will likely be to accept the increase in premium. However, as noted in the letter from Long Term Care Partners, policy holders will receive an option to pay the increased premium and options to reduce benefits to keep premiums the same or a slight increase. We know that many clients will be impacted by this and plan to add it to the Strategic Planning Meeting Agenda if the letters and due dates line up correctly. If not, we’ll come up with a new plan and keep you informed.

Long term care insurance is put in place for a variety of reasons and those with a policy typically feel secure and confident in their decision to acquire.  Increased premiums during an inflationary environment that we haven’t seen in decades will undoubtedly cause concerns. However, don’t forget that your largest assets increased between 4.9% (FERS) and 5.9% (SS, DFAS, and CSRS) this year and will likely receive a similar increase in 2023.

We encourage you to listen to Episode 14 of the Federal Employee Financial Planning Podcast. John, Mike, and Tommy interviewed Jill MacNeil from LLIS. Jill is a long-term care expert, and we hope that this episode will put into perspective how great the Federal Long Term Care Insurance is and reinforce the reasons for having a policy in place. Episode 14- Long Term Care Insurance with Jill MacNeil