The Federal Long Term Care Insurance Program (FLTCIP) is suspending new applications for new coverage, starting on Dec. 19, 2022. The suspension is designed to allow the program and its carrier, the John Hancock Life and Health Insurance Company, to reevaluate the program's costs and benefit levels.
What Is Long-Term Care Insurance?
Note: This article does not attempt to cover all aspects of the complicated decision whether or not to purchase long-term care insurance. You need to do a lot more research to figure out what's best for you.
Long-term care insurance provides benefits when a beneficiary receives a specified kind of long-term care. Some policies cover nursing home care, while others may also include care in the home or in non-nursing home care facilities.
It is very important to understand that long-term care insurance almost never covers all the cost of long-term care. Plans have waiting periods, eligibility requirements, and daily maximum and lifetime maximum benefits. At best, long-term care insurance will help defray the cost of long-term care that you might need.
Every plan is different, and it's important to understand every single nuance of any plan you are considering.
Who Is Eligible for the Federal Long Term Care Insurance Program?
The Federal Long Term Care Insurance Program is available to current and retired federal employees, including military service members, and certain eligible family members.
This includes active-duty service members, full-time National Guard members on orders for more than 30 days, and active members of the Selected Reserve. It also includes military retirees, including retired reservists awaiting retired pay.
Also eligible are spouses, adult children and domestic partners of eligible persons. Parents are eligible if the employee is active duty but not if the employee is retired.
What Does This Suspension Mean for You?
If you're considering purchasing long-term care insurance, you may want to speed up your decision timeline and determine whether the federal program is right for your needs.
If you submit your application for the FLTCIP before 11:59 p.m. (Eastern Time) on Dec. 18, 2022, your application will be processed as normal. After that, applications will not be accepted until the program reopens. Officials estimate it will be 24 months until they reopen the program.
Do You Need Long-Term Care Insurance?
Like most questions in personal finance, the answer is, "It depends." There's a reason that we put the word personal in personal finance. Every person's situation is different.
In general, most thoughtful financial planners put people into one of three groups when it comes to long-term care financial planning:
- Group A includes people who will never be able to afford long-term care, can't afford the cost of long-term care insurance and will rely on Medicaid programs. They don't need to decide whether to purchase long-term care insurance.
- Group B includes people who have plenty of assets to support long-term care and don't need to spend the money on long-term care insurance premiums. They don't need to decide whether to purchase long-term care insurance.
- Group C includes people who can afford and are willing to pay the premiums for long-term care insurance and prefer to know that they have benefits available if they need them. These are the people who need to decide whether long-term care insurance makes sense for them.
Alternatives to Long-Term Care Insurance
Long-term care insurance is one of many options to pay for possible long-term care needs. Other options include personal savings, "hybrid" life insurance/long-term care insurance policies, health savings accounts, annuities with long-term care riders, and short-term care policies.
Long-term care planning is an important part of your overall financial plan, but it's important to remember that not every person will need long-term care. Statistics vary dramatically, but it is estimated that somewhere around 70% of individuals will require some sort of long-term care in their lifetime. However, the majority of those long-term care stays are less than one year. On the flip side, there are a significant number of people who need long-term care for more than five years.
Unfortunately, there's no right answer for any specific situation. You have to make the best decision with the information available at that time. The important thing right now is if long-term care is on your planning radar, you may want to do some very speedy research and decision-making before the federal program pauses new applications.