Long Term Care

Most long-term insurance care enrollees are eligible for little-known benefit

Three-fifths of enrollees in the Federal Long Term Care Insurance Program who are facing steep premium increases will be eligible to invoke a little-known feature of the program that will allow them to stop paying premiums but still keep some coverage, the Office of Personnel Management has said.

The paid-up provision allows enrollees whose premium is increased beyond a certain percentage to stop paying premiums, with benefits then reduced. The triggering percentages VARY ccording to the age at enrollment and take into account all increases since that time; FLTCIP rates also increased for many enrollees in early 2010.

The OPM announced last week that premiums will increase on average by 83 percent in November for all but about 10,000 of the 274,000 people in the program, which is open to active and retired federal employees and military personnel and certain family members.

Enrollees pay the entire premium, with no government contribution, for insurance that covers at-home, nursing home and other types of care for those who need help with activities of daily living such as bathing or dressing, or who have certain cognitive impairments.

Rates vary according to the age at enrollment and choices including daily benefit amounts, length of policy and inflation protection. The increases come with the award of a new seven-year contract with the provider, John Hancock Life and Health Insurance Co., and are based on projections that the current premiums would not cover future payouts.

Affected enrollees are being notified that during an “enrollee decision period” through September, they can accept the increase; reduce benefits to keep their premiums the same; choose a middle course; or, if eligible, elect a paid-up benefit (enrollees also can cancel their policies at any time, although they would lose eligibility for future benefits).

In response to a query, OPM said that about 60 percent of those facing a premium increase are being told in their notice letters that they are eligible for the paid-up benefit, formally known as a “contingent benefit upon lapse.”

“By choosing this option, the enrollee will keep their current daily benefit amount, but their maximum lifetime benefit will be reduced to total premiums paid through November 1, 2016, or 30 times the current daily benefit amount of the coverage, whichever is greater,” OPM said.

“By exercising the contingent benefit upon lapse, the enrollee could significantly reduce the benefits of their coverage, so it is important to give this option careful consideration before selecting it. We encourage the enrollee to discuss their options with a financial advisor on the potential implications of changing their long term care insurance coverage,” it said.

The paid-up option could prove to be attractive for some enrollees in the face of the increase, compared with their other choices.

“One of things we’re finding throughout this notification process is that people, in addition to being justifiably angry, really don’t understand what their options are. They are confused and unsure of what to do next,” Jessica Klement, legislative director of the National Active and Retired Federal Employees Association, said in an email.

“If the enrollee wants to cut and run, which may be the only viable financial option, there would still be money that can help pay for long term care costs in the enrollee’s maximum lifetime benefit account. Hopefully, those eligible individuals, and all of those affected, will take the time to call the program and have the option explained,” she said.

OPM also provided a fuller explanation for its decision to create what will be a two-level premium structure. Premiums are not increasing for those who newly enrolled after July 31, 2015, or who will enroll in the future. Premiums had increased for new enrolments after that date by 30 percent on average over the rates applying to those who had enrolled up to then.

However, those who enrolled before that date are now facing a much larger average increase starting in November, under last week’s announcement.

Said OPM: “The premium increase needed for the inforce (enrollee) population is significantly more than what is needed for new enrollees because the inforce population is starting from a significant deficit position, whereas new business starts from a clean slate with no deficit to make up for. The significant deficit for the inforce population is due to their having paid lower than necessary premiums for up to 14 years.”

“Even with the increase that current enrollees are facing, FLTCIP pricing remains competitive,” in the long-term care insurance market, it said.

In addition to those enrolling starting last August, the premium increases won’t apply to those who were age 79 or older when they enrolled, those who are under an alternative plan that covers only nursing home care, and those currently drawing benefits or awaiting a decision on a claim.