Federal Long Term Care Insurance Premium Increases

[Purron]

I've been hearing about this and received a letter recently alerting me to upcoming changes. A new contract has been awarded to John Hancock. DH and I are looking at a 25% increase in our premium according to OPM.

See the details here:

Federal Long Term Care Insurance Program Help Section

I'm curious about how other participants are planning to deal with this change. LTC insurance does give us some comfort, particularly given the fact DH's mom has been in a nursing home for many years after her stroke. It sure is getting expensive though.

 

[ziggy29]

More of that deflation.

 

[W2R]

I am not a participant but this increase was very upsetting to many:

Joe Davidson - Federal Diary: Buyers of Long-Term Care Insurance Riled by Premium Increase - washingtonpost.com

 

[chinaco]

We have LTC thorugh DW's work (she is ERd). It has an inflation increase option that is exercised every few years. It is optional to the policy holder (and fairly expensive). It is based on age.

We exercise the option because it is the only way to keep up. Still our policy is relatively cheap since it is a group policy (about 1/3 what it would cost for an individual policy as calculated on AARP). The company is a very large (over 100 years old) Multi-national with 100k plus employees. Therefore there is a large pool in the group... I am sure that helps to keep costs down.

What we did not see was any reference to the original cost of the policy (a few cases). A 25% bump on $2k (per person) is significant. A 25% bump on $600 (per person) is less in $ and still a fantastic deal compared to individual insurance (assuming the coverage is decent). They have a fairly large pool of people in the plan (150k).

There is a premium calculator on the site, but it is not operable because of the transition.

I can certainly understand how the increase is a shock... but there is no free lunch and insurers are not stupid. They are not going to absorb all of the risk (in this case inflation).

I have not seen the inflation cost of LTC... I would assume it is somewhat similar to general medical costs which is fairly high.

 

[FinallyRetired]

I don't know what your premiums are, but the whole idea of LTC insurance is to lock in low rates while we're young and healthy. Premium increases go against that, although an increase across the board would still result in cheaper rates for those who obtained the policy at a young age.

DW and I got a CNA policy when we were in our 40s for about $62 a month each, paying $100 a day for 6 years as I recall. They've only had one minor increase in premiums in 20 years.

 

[ziggy29]

I don't know what your premiums are, but the whole idea of LTC insurance is to lock in low rates while we're young and healthy. Premium increases go against that, although an increase across the board would still result in cheaper rates for those who obtained the policy at a young age.

This is the main reason I've decided against LTC for now. The main selling point for buying it at a younger age is negated when they can keep jacking up rates.

 

[chinaco]

I don't know what your premiums are, but the whole idea of LTC insurance is to lock in low rates while we're young and healthy. Premium increases go against that, although an increase across the board would still result in cheaper rates for those who obtained the policy at a young age.

DW and I got a CNA policy when we were in our 40s for about $62 a month each, paying $100 a day for 6 years as I recall. They've only had one minor increase in premiums in 20 years.

That is part of it... but I think it is a bit more complicated than just age. It also has to do with your health. If you had some disease or problem that increased the odds that they would have to pay, they would rate you (you pay more than a healthy individual the same age) or not insure you at all.

It might be a bit more accurate to think of it as locking in while you are healthy and it appears less likely that you will need LTC.

At a younger age, you are less likely to have contracted the problems that will cause you to need LTC. Once you really need LTC ... you could not purchase the insurance.

 

[ziggy29]

At a younger age, you are less likely to have contracted the problems that will cause you to need LTC. Once you really need LTC ... you could not purchase the insurance.

As a new hire, my wife has until November to decide whether to elect LTC with no pre-existing condition exclusions. Of course, being group insurance healthy individuals can probably do better on the private market, but the rates aren't too out of line with quotes I've seen for healthy folks (at least at our ages, 43 and 41). But the rates they quote at this age can go up by a factor of six or seven if you want a 5% inflation kicker. With no inflation kicker, today's benefit amounts would be a joke in 20-30 years.

So if we wanted even a 3% inflation kicker at $150 a day for three years, it's still $190 a month for the two of us. (With a 5% inflation kicker it's about $280.) And I don't trust that this wouldn't become $300-400 in a few years. That is my biggest concern about LTCI. If I could trust it to be $190 a month for life, I'd probably do it.

 

[REWahoo]

I've posted this before, but 9 years ago at age 52/51 DW and I took out LTC policies with CNA (now out of the LTC business). We opted for 3 years of coverage at $100 per day with a 5% annual inflation increase. Our combined premiums are ~$95 a month and were guaranteed not to increase for 10 years. I'm dreading to see what the increase will be when we get our bill next Spring...

 

[FinallyRetired]

This is the main reason I've decided against LTC for now. The main selling point for buying it at a younger age is negated when they can keep jacking up rates.

You have to weigh the rates and possible rate increases against the cost of LTC nursing homes. Having had to deal with that for my MIL, I can tell you the cost would bankrupt most people in a hurry. The avg cost of a nursing home can range from $60k to $150k or more per year depending on the part of the country and the quality. And unless we have family who can care for us, and assuming we don't mind being a burden that way, there is no other choice.

For an average single retiree with no other obligations it may be barely possible to find a nursing home within their means, assuming every last penny goes to LTC. Problem is, for a married retiree the spouse still needs money to live on. And if the spouse also needs LTC, it's all over. Medicaid would be the only other option, but not many homes take that, and every year there is less Medicaid money to go around.

So my advice is to plan carefully and consider your entire lifespan rather than shy away because of possible rate increases. If you decide against LTC insurance, at least have a savings plan that includes a LTC amount.

 

[W2R]

I've posted this before, but 9 years ago at age 52/51 DW and I took out LTC policies with CNA (now out of the LTC business). We opted for 3 years of coverage at $100 per day with a 5% annual inflation increase. Our combined premiums are ~$95 a month and were guaranteed not to increase for 10 years. I'm dreading to see what the increase will be when we get our bill next Spring...

And yet if you drop the insurance, essentially you have put $11,400 into LTC insurance over the past 10 years and got nothing for it, so that is an incentive to accept whatever increase is imposed. With LTC premiums going up so much, even for the fed LTC insurance, I think you and many others have good reason to be worried.

 

[ziggy29]

And yet if you drop the insurance, essentially you have put $11,400 into LTC insurance over the past 10 years and got nothing for it, so that is an incentive to accept whatever increase is imposed. With LTC premiums going up so much, even for the fed LTC insurance, I think you and many others have good reason to be worried.

Yeah, this is what is really screwed about it. You're basically hostage to rate increases. I know some policies will retain partial benefits if you let it lapse after a certain amount of time; the one offered to my wife still pays out partial prorated benefits after three or more years of premium payment.

The other concern is that if I lost my j*b in the next few years, there's almost no way we could still afford to maintain these payments long-term -- even if they didn't go up 25-50% or more in the next 5-10 years.

 

[chinaco]

As a new hire, my wife has until November to decide whether to elect LTC with no pre-existing condition exclusions. Of course, being group insurance healthy individuals can probably do better on the private market, but the rates aren't too out of line with quotes I've seen for healthy folks (at least at our ages, 43 and 41). But the rates they quote at this age can go up by a factor of six or seven if you want a 5% inflation kicker. With no inflation kicker, today's benefit amounts would be a joke in 20-30 years.

So if we wanted even a 3% inflation kicker at $150 a day for three years, it's still $190 a month for the two of us. And I don't trust that this wouldn't become $300-400 in a few years. That is my biggest concern about LTCI. If I could trust it to be $190 a month for life, I'd probably do it.

My DW had the same option (no medical underwriting). We were in our late 40's. We took it. I made the decision by checking some prices for individual policies (non-group). The insurer in the company's group policy was solid, so it seemed like a good deal.

As a point of reference, we have the option to accept the inflation boost every 3 years (with an increase in premium)... the table shows the increase in premium is based on age (higher if you are older). Our insurer seem to handle the premium increases in the inflation increase. So our premium does go up. We currently have coverage of $180 per day at an annual cost for both of us of $800 (approx $400 each)... Approx $33/mo. We are both 53.

Back to my original post... While I would not be happy with a 25% increase... it would represent a $100 increase on our current premium... I would still say "sign me up".

Now you know why I bought it. When we bought it.. it was about $250 per person per year. It was (and still is) a fantastic deal. One of the benefits of one of the better Mega Corps.

 

[W2R]

Yeah, this is what is really screwed about it. You're basically hostage to rate increases. I know some policies will retain partial benefits if you let it lapse after a certain amount of time; the one offered to my wife still pays out partial prorated benefits after three or more years of premium payment.

The other concern is that if I lost my j*b in the next few years, there's almost no way we could still afford to maintain these payments long-term -- even if they didn't go up 25-50% or more in the next 5-10 years.

Another concern is one that doesn't bother most people, but bothers me. When my mother needed to have her LTC insurance kick in, her (very well respected) insurance company gave her problems. She had been living for many years in a continual care facility, that had assisted living as well as skilled nursing, and the nincompoop at the insurance company couldn't grasp the fact that her condition had worsened and she was now eligible to collect. It was just the usual type of hassle that we all have on a daily basis dealing with idiots on the phone, but they wouldn't listen to my mother, who was very old and in poor health and of a gentle disposition. She called and called, over a period of months, and had absolutely no luck in getting one single cent from the insurance company.

In her case, her grandson was/is an aggressive hot-shot lawyer in NYC and one call from him and her payments from her LTC insurance began. However, not every elderly woman has an advocate like that. Had she been alone in her old age, she never would have got past the dummy on the phone and all those LTC payments would have been for nothing.

Granted, this doesn't happen to everyone and there are probably ways around it. However it did lead me to believe that some people might have difficulty collecting in their old age and that insurance companies aren't in the LTC insurance business out of the goodness of their hearts.

 

[REWahoo]

And yet if you drop the insurance, essentially you have put $11,400 into LTC insurance over the past 10 years and got nothing for it, so that is an incentive to accept whatever increase is imposed. With LTC premiums going up so much, even for the fed LTC insurance, I think you and many others have good reason to be worried.

If we do get zapped with a huge increase I'm considering a couple of alternatives. If the ins. company will allow it, I may opt for keeping the premium the same and reducing the amount of coverage. If that isn't offered, then I may drop DW's coverage and keep mine. The logic there being I can probably manage to live on much less easier than her in a Medicare spendown situation.

 

[Moemg]

If we do get zapped with a huge increase I'm considering a couple of alternatives. If the ins. company will allow it, I may opt for keeping the premium the same and reducing the amount of coverage. If that isn't offered, then I may drop DW's coverage and keep mine. The logic there being I can probably manage to live on much less easier than her in a Medicare spendown situation.

Rewahoo , while I understand the reason you would drop hers I would drop yours instead and keep hers . The reason is that women outlive men (sorry but true ) and also women tend to be good caregivers so if you got ill she would probably care for you with some help eliminating the need for a nursing home . I'm sure you would also care for her but since statistically women outlive men she may need care that requires a Nursing Home stay .

 

[mickeyd]

I've never been a fan of LTC and do not have a LTC policy. I choose to self insure for this limited risk. I have always thought that LTC coverage was too expensive for the risk that it covers and the limited data that is used to establish rates, as opposed to life insurance that has millions of cases of how folks have died over the last 100+ years.

 

[honobob]

I recently checked my ten year old policy with CalPERS and my coverage amount has increased 48% although my premiums have only increased a little over inflation. If I were to buy the same coverage today it would cost me $360 a month. I pay about $131 a month. I've been able to wake up for 3650 mornings thanking God I'm not in a nursing home and knowing I'd be getting $192 tax free each and every day if I was.

I also don't understand why some people think you've lost money if you don't use it. Do those people carry term life, auto and home insurance?
I suggest anyone contemplating LTCI visit a nursing home.

The CalPERS plan is available to a wide range of people related to a CA government employee.

 

[Nords]

I've never been a fan of LTC and do not have a LTC policy. I choose to self insure for this limited risk. I have always thought that LTC coverage was too expensive for the risk that it covers and the limited data that is used to establish rates, as opposed to life insurance that has millions of cases of how folks have died over the last 100+ years.

Buffett writes that a lot of insurance companies keep writing policies, even when the profit margins are razor-thin, so that they can keep bringing in revenue. They don't always appreciate that the risk they're taking on might be much higher than the premium income that they're undercutting each other on.

I think these increases reflect an updated insurer's experience with actual long-term care payouts, and a realization that they're heading down a bad road.

Here's an analogy. In 1982 I purchased a lifetime subscription to the U.S. Naval Institute's PROCEEDINGs magazine. I also was declared eligible for a lifetime subscription to our alumni magazine. Yesterday I received a begging letter from USNI describing the horrible things that would happen to our nation's maritime security if I didn't immediately send them a charitable donation to help keep the magazine "independent". Over the last decade the alumni magazine has already gone from 12x/year to 10x to 8x and is now threatening to become the Internet's premier alumni magazine. Clearly none of the editors could calculate the net present value of a lifetime series of payments, and now I suspect the insurance companies are arriving at the same dawning awareness.

Spouse and I are hoping to be able to self-insure our own LTC expenses. At this point I think it's too early to be confident that any insurance companies can stay in the business.

 

[brewer12345]

I've never been a fan of LTC and do not have a LTC policy. I choose to self insure for this limited risk. I have always thought that LTC coverage was too expensive for the risk that it covers and the limited data that is used to establish rates, as opposed to life insurance that has millions of cases of how folks have died over the last 100+ years.

Bingo. Moreover, these policies are designed so that you have not really offloaded the risk related to LTC expenses (at least not entirely). I think the product is a lousy one and am not interested until it matures (if then). Self insurance looks a lot more appealing.

 

[ziggy29]

I've never been a fan of LTC and do not have a LTC policy. I choose to self insure for this limited risk. I have always thought that LTC coverage was too expensive for the risk that it covers and the limited data that is used to establish rates, as opposed to life insurance that has millions of cases of how folks have died over the last 100+ years.

Well, I think the fact that they've had to jack up "locked in" LTC rates rather steeply tells you all you need to know about the insurers' inability to appropriately price their risk. When you buy a life insurance policy with "locked in" rates, you don't have an insurer coming at you with premium increases down the road. Insurers know how to price life auto insurance very effectively -- even homeowners insurance to a large degree, despite the variability of super-cat disasters.

As far as health and LTC, it's pretty obvious there are difference pricing dynamics and the usual actuarial methods of trying to find an appropriate "price" (as with auto and life) are doomed to fail.

 

[brewer12345]

Well, I think the fact that they've had to jack up "locked in" LTC rates rather steeply tells you all you need to know about the insurers' inability to appropriately price their risk. When you buy a life insurance policy with "locked in" rates, you don't have an insurer coming at you with premium increases down the road. Insurers know how to price life auto insurance very effectively -- even homeowners insurance to a large degree, despite the variability of super-cat disasters.

As far as health and LTC, it's pretty obvious there are difference pricing dynamics and the usual actuarial methods of trying to find an appropriate "price" (as with auto and life) are doomed to fail.

Methinks you give the industry too much credit for pricing acumen on other products. Auto policies get mispriced all the time, but they are only fixed for 6 or 12 months so it isn't hard to make adjustments to your pricing. Ovviously term life is fixed, but in universal and whole life policies pricing gets adjusted all the time.

 

[Purron]

For now, I plan to keep the Federal LTC insurance even with the increase in premiums. I will consider changing our options to lower the price. DH and I have spent countless hours in nursing homes during the 15+ years his mother has required care. I gotta tell you, it's pretty darn depressing.

 

[REWahoo]

Rewahoo , while I understand the reason you would drop hers I would drop yours instead and keep hers . The reason is that women outlive men (sorry but true ) and also women tend to be good caregivers so if you got ill she would probably care for you with some help eliminating the need for a nursing home . I'm sure you would also care for her but since statistically women outlive men she may need care that requires a Nursing Home stay .

Moe, I do understand why you suggest we do a 180 with our plans. We took these factors into consideration when reaching our decision.

Although odds are she will outlive me, I don't want to place her in a situation where she is forced to take care of me at home to avoid financial ruin. Nor do I think the odds are necessarily favorable that she would be physically or emotionally able to care for me at home, even with help.

She'll probably kill me long before I'm ready to be institutionalized, anyhow...

 

[Moemg]

She'll probably kill me long before I'm ready to be institutionalized, anyhow...

Watch out for the arsenic taste in your oatmeal !