No way to sugarcoat this one- If you own the Federal LTCi plan, you’re looking at another price hike that could be up to 86%. But there will be options to amend your policy to mitigate the cost. Please use this short podcast as a guide on how to deal with this. We strongly recommend passing this Pod on to others you know who will also have some important decisions to make!
Federal long term care insurance premiums Increase by as much as 86%
Steve:
Welcome to Plan for Life. Now, episode 1 0 6, before you do a double take and say, wait a second, these guys usually do an episode once a month. Why are they doing one already? This is sort of a special episode, Dave.
Dave:
Yeah, well, we’ll call it an emergency pod. It’s not a real emergency for many of you. It’s a non-emergency because you’re not involved in what the topic is. But if you have the federal long-term care insurance plan, which many of our clients do and a lot of people do, then this podcast is definitely, I almost feel like calling it a po. It’s a podcast and a little seminar about the federal long-term care insurance price raise that Steve will give you the details on and what to do about it.
Steve:
So before we do that, let’s set a little bit of background as to what the federal long-term care insurance program is when it started. This started back in, what was it, 2000 or 2001.
Dave:
2001,
Steve:
Okay. And this was at the time, originally it was a joint partnership between MetLife and John Hancock. I believe only John Hancock administers the plan Now, am I right?
Dave:
Correct. That is correct.
Steve:
Okay. And when this came out, this was a huge thing for the industry in general because long-term care insurance was a relatively new insurance and there were a couple companies out there selling it, but this kind of solidified it as, alright, people should think about this. The federal government is offering this to their employees. People really should consider this as a protection element in their overall plan. And the federal government had this massive rollout. They had all kinds of seminars and promotion of it. And I mean even you of all people, Dave did hundreds of seminars at that time.
Dave:
Hundreds I think I was doing That’s right. You were there. I was there
Steve:
For part of it
Dave:
There at our firm at the beginning. But you were there during Right in the heart of it. Yeah, I was doing about, it felt like a couple of these talks a week. We were setting up lunchtime ones. There was just so much interest for good reason, as you described in the federal long-term care insurance plan. And really those seminars were comparing the federal long-term care insurance plan to private options that people had and sort of going through the pros and cons of that. Yeah, so my expertise would certainly be in this realm.
Steve:
I remember some of those seminars being standing room only, people getting there, and it was just packed and it made sense. I mean, it’s a big decision. You’re talking about spending thousands of dollars a year for the rest of your life. You’re basically saying, okay, I understand this is a risk and I’ve got to design a plan now. So you might be in your mid fifties, early sixties. I’ve got to design a plan now and then the benefits won’t be paid for 20 or 30 years if ever. So how do I compare all these different options? And I don’t want to come down to a bottom line, but one of the big takeaways from your seminar at that time was that the federal government plan, the L T C Partners plan was very generous on underwriting. And by that I mean you could actively have cancer, diabetes, H I V, all of these things that would normally disqualify you immediately from long-term care. But the federal plan allowed you to sign up,
Dave:
Right? Well, actually to be more specific, if you’re a current employee at the time, current employee, right? Then you had an open season and the open season was a short period of time, not just to get the insurance, but like you said, to get the insurance and not have to worry about so many underwriting things that the private plans had. So my point in the seminar then was when you’re letting so many people in who are higher risk, there are bound to be problems on the backside. And this is the problem that you’re now seeing on the backside. It is not just that reason though, even though that was my premise when I did this seminar 20 years ago, the reality is it’s that combined with just the normal amount of claims that every carrier, whether it’s the federal long-term care insurance plan or anybody is dealing with a lot of claims, a lot of people, a, not dropping their policy, normal attrition, and B, lots of claims for everything that the advance in home care and assisted living is. We don’t need to go over that again. Everybody knows what’s going on now in 2023 heading to 2024. But it’s led to not just on the federal long-term care insurance plan, but on virtually all what are called traditional long-term care insurance plans. There have been price hikes on the current class. Every plan has the ability to raise the price once you already own it.
Steve:
Wow. And I feel like that’s the biggest misunderstanding that consumers have, and I think their insurance companies have to take some blame here too. But the whole headline, the whole reason why we’re doing this today is there was an article that came out in the Federal News Network that said, it looks like there’s going to be, or there are going to be additional price increases for federal long-term care insurance policy holders. And they didn’t have exact data. They contacted L T C partners. They didn’t have exact data, but just anecdotally, they talked to some people who had already gotten notices and they’ve seen some as high as 86%. So that’s really what sparked all of this. Hey, we should talk about this because not only has the federal plan, the federal plan, of course, because of their more generous underwriting, it’s probably been, I don’t want to say one of the worst. I’m sure there are others out there that are bad, but it’s been one of the most prominent price that are out there. But even the best plans out there have had price increases. And I mean, you field quite a few phone calls every week from people saying, what do I do? Prices going up 10%, 50%, 86%. What are my options here?
Dave:
Back a little history. And the reason I think this one is going to be this price hike with the feds is going to be another tsunami of, I don’t want to say, yeah, maybe I will say misinformation, but problems. They already had a price hike in 2016, and that was a significant price hike and it was not abnormal based on the rest of the industry, but they had that price hike that just came about, and it was a high increase depending on what type of policy you had. It was either high or really high. And I went through with my, I just think basic reputation and knowledge of the, and so many people had been to my seminars. I fielded tons of what I call pro bono work because we always did a seminar on the private plans versus the federal long-term care insurance plan.
Some people went with plans that we would do, other people went with the feds. Those who went with the feds had these problems in 2016. And I said, call me. I don’t care if you’re a client or not, because to get the proper information and advice was very difficult independently. And we went through that in 2016 already, and now we’re having it again. So this point here is really important in the 2016 price hike where I’ve talked to literally maybe a hundred people who have the federal long-term care insurance plan, when an insurance company raises the price on your products on your L T C product, they can’t just do it anymore and say, Hey, here’s the price hike, take it or leave it. For the most part, they are going to offer you what they call in the industry landing spots, but they’re really choices, choices to amend your policy to either keep your premium the same or get a lower price hike.
And of course, the amendment of the policy is going to make it weaker, but it’s a choice. I’ve seen almost every company’s price hike over my years of doing this and have analyzed these choices. Some are horrible. Just keep what you have and eat the price rates. The federal long-term care insurance price hike choices through John Hancock in 2016 were very palatable. They weren’t bad choices. They basically involved maybe lowering the growth of your coverage a little bit, but not too much more to keep your price close to the same as it was. Now, that wasn’t for everybody, but that was for a lot of people that I talked to. So in fairness to this plan, when they did do the price hike in 2016, they gave choices or landing spots that weren’t bad. You had to talk it out. You had to get your emotion out of the way and look at what it was all about, and that’s what we did. But you have to analyze the choices
Steve:
When you say, get your emotion out of the way. That’s so true because so many people come to this and quite frankly, they’re pissed off. They’re going, I didn’t know this was going to happen. I didn’t know this was a possibility. I’m angry. And you do have to get past that emotion and say, okay, what is the right choice for me?
Dave:
Now, the other important, this became very important as I fielded so many calls in 2016. Let’s face it, I was doing a seminar for private plans. The seminar, as you remember, because you went to lots of them, was very compelling at the time. If you were healthy to choose a private plan over the federal long-term care insurance plan. For a bunch of reasons I don’t feel like getting into, but it was a compelling choice.
So you might think that in 2016 with all these people coming back, that would be an opportunity for somebody who sells the individual plans or the private plans to try to say, Hey, your plan sucks. Get out of it. That was not the case at all. In 2016, virtually everyone I talked to, I said, Hey, I know you’re upset about this price raise. I know you feel like dropping this whole thing because you feel like you were duped, even though if you read the fine print, you weren’t duped. But let’s look at what you have. Let’s look at what the cost of the insurance is. Now let’s look at your overall financial plan. It makes sense to either keep what you have and take the price raise or take one of these amendments that weren’t so bad at the time and keep this insurance, it’s a better choice.
And people would hem and haw and I’d say, okay, I just told you it’s a better choice. I have everything in my benefit is to tell you that your plan sucks and to sell you a new one. So take that for what it is. I don’t work that way. We don’t work that way. We’ve never worked that way. It’s our job and our responsibility to do what’s the best interest of people. But still, the bottom line is take it for what it’s worth. And virtually everyone I talked to did take it for what it’s worth, and I think they made the right decision in keeping the federal long-term care insurance plan. Now we come to 2020 three’s price hike, and we’re in the exact same scenario, same kind of price raise.
Steve:
Well, I was going to go through here, and I mean this seems to be very, this just happened the past couple of days, and the Federal News Network has talked to a few people who have gotten these letters, but there’s no official announcements or numbers, but anecdotally, they talked to one guy here, his plan is currently $76 a month. They went through, he was very, very young when he enrolled $76 a month in premiums, and he’s got $148 daily benefit. Now, the options that they gave him, that 86% price increase that takes place over three years. So it’s sort of phased in. They do 25% and 30%, so they increase it over three years. So if he wants to just absorb that, he can do that. And his premium will go from 76 a month up to 1 41 a month in a couple of years.
Nothing about his policy changes at all. But then they also, like you mentioned, they gave what I consider to be a pretty good landing spot options here. One of them is to keep everything the same, so his premium the same, his benefit, his benefit period, the same, all of that, but change his inflation protection from 4% down to 1.88%. In my mind, if I’m looking at this and I’m saying, okay, I don’t want to have my price virtually double here, 1.88% is not terrible. That seems okay to go from four to 1.88. So if it were me and I’m a little bit cost conscious, that might be where I end up now. Right.
Dave:
Okay. But that’s agreed. I read the same example and said, you know what, anecdotally, because that’s a big word in all this, this is just one example. This is not necessarily you listening to this show anecdotally, that looks pretty good. Maybe I’ll eat the price raise if I have a lot of assets and that premium hike is no big deal compared to the coverage, maybe I’ll just amend it because I can partially ensure this myself at this point. And that’s not a bad landing spot, but the word is anecdotal. That’s one example that’s in a newsletter we saw what’s your situation going to be? So yeah, but just from seeing that one example, it looks like, once again, the choices you’re going to have are going to be palatable. I always say also look at the market currently, and I don’t mean look at it your age.
You might be now in your seventies or even eighties, but what age were you when you purchased this? Then look at what you’re buying and then compare it to now. And even with a price raise, you are looking at a far higher premium. If you bought it at the age you did back in whenever 2003, 2005, whatever you are looking at, still a better premium. Even with these price raises, then you can get it at that age if you are buying it in 2024. So I look at that as another data point when doing this. I also look at the situation, the financial situation of the person who’s calling me. That’s going to have a huge part in making a decision on this insurance. So the bottom line, oh, go ahead.
Steve:
I was going to say, I mean if an extra 70 bucks a month is not going to, it’s not really going to hurt your situation. Yeah, you’re probably going to be better off just in this example, eating the increase and saying, okay, I’ll pay it. I don’t like it, but I’ll pay it. But if it’s a situation where you say, you know what? My budget is tight, an extra a hundred or 200 a month, that’s going to put a real strain on things. Then like I said, the landing spot might be a better choice.
Dave:
I would say my advice would be a couple things. One, when you see this price hike, do not get emotional about it. Even though when you read about it, especially from media, they’re going to, and I’m not one of these media people, oh, the media is this and that, but the reality is they’re writing articles and they’re not experts at this, and they can easily say, you were duped at the beginning or you were told this or that about a price raise. Okay, bottom line is this. Don’t get emotional about another price raise. All this keeps going up forever. This is that, this, that, and the other thing, I’m just dropping it. Do not get emotional about this decision would be advice piece number one.
Steve:
Well, let’s talk for a minute. Let’s back up a second and talk about why people thought that the premium wouldn’t go up and why the insurance companies are allowed. And you’re right, it is right there in the contract. Why are the insurance companies allowed to increase the premium?
Dave:
Well, they’re allowed to because basically there’s, well, there’s two. One is in the private insurance world. All life insurance companies who sell long-term care insurance also are regulated by the states, and one of the state regulations is a long-term care insurance company is allowed to go to the state insurance commissioner and apply for a price raise. The state insurance commissioner doesn’t have to accept that. They can say no or amend what they apply for. Nowadays, they always say you have to give the consumers choices and they go from there. There’s regulation about it. Now, this is one of my issues, quite frankly, with the O P M scenario. They’re not under that same guise exactly. I think so far they’ve been going by it, but they’re not technically under it. It’s basically a decision from, but I think at the same time they’re going by it just one thing could be legal things in the contract. The other thing would be, Hey, we’re going to make our own thing up, which then could be argued with lawyers, which I don’t think John Hancock’s doing. So they’re basically following the same suit. But the reality is every seven years this contract is up for renewal and every seven years you can expect some sort of price hike. That doesn’t mean they’re going to keep going on, but we’ll see.
Steve:
Well, we go down to the fundamentals of why any of these policies are increasing, whether it’s the federal plan, which like we pointed out, there was some pretty obvious risks there going in where you knew their claims were going to be much higher. I mean, if you have lax underwriting, you’re going to get that sort of adverse selection where the unhealthier people will get that plan more likely to get that plan. But across the industry, even in companies that had very stringent underwriting, there have been price increases. And that really just comes down to this was a relatively product. The insurance companies did not price it correctly. So when people did not drop the policy and keep staying alive, because let’s think about what long-term care insurance pays for. It doesn’t pay you when you die. It pays you when you stay alive. So if you stay alive longer and longer and need care, the chances of them having to pay a claim continue to go up. So the insurance companies mispriced the risk. They’ve got this pool of assets here, and they’re able to make a case to the Insurance Commission commissioners that the premiums they’re taking in just aren’t enough to support the claims. And that’s why you’ve seen, like I said, across the board, every big company out there has applied for some sort of price increases.
Dave:
Advice point number two, analyze your situation with a professional. Before you do anything, you might look at it yourself and just say, Hey, I get it, and I’m just either going to not take, or I’ll just take this price hike or I’m going to amend the policy. You understand this enough to do it. But if you’re on the fence at all or you have questions, you need to go to a professional, your financial advisor. Quite frankly, we feel like financial advisors should be all over this stuff. Steve and I do, but a lot of them aren’t. I always say, you can contact me now if you’re our client, of course you’re going to contact me and you should, but I have other people who just contact me at dave@capitalretirement.com or you know how to get to me if you’re listening to this, and I’d be glad to talk to people about it and help talk them through it. I consider that what I should be doing with knowledge on the subject. But you need to talk to somebody about it and not make a rash decision because it’s an important decision.
Steve:
Absolutely agree. I think we’ll wrap it up right there for this semi-emergency podcast. Not really emergency because it’s not anything that’s happening today or tomorrow, but certainly if you’re getting one of these letters and in your mind it feels urgent, and you do probably have to make that decision in the next couple of months to what are you going to do? And like Dave said, try not to let that emotion take over. I know it’s not fun, but luckily there should be some good options for you, some good places to land and choices, and we’d certainly be happy to help talk you through all of those. Thanks for listening, and we will check in again soon.