Federal Long-Term Care Insurance vs. Private

According to 2020 data provided by the Administration for Community Living, which is part of the U.S. Department of Health and Human Services, nearly 70% of people aged 65 and older will eventually need some type of long-term care services or support. Men typically require care for an average of 2.2 years, while women require it for 3.7 years.

Jump ahead to these sections:

• Overview: Federal vs. Private Long-Term Care Insurance
• Costs: Federal vs. Private Long-Term Care Insurance
• Should You Get Federal Insurance, Private Insurance, or Neither?
• Are There Any Alternatives to Federal Long-Term Care Insurance or Private Long-Term Care Insurance?

There are several types of long-term care insurance plans and ways to buy them. This article will examine two of those: federal long-term care insurance and private long-term care insurance. 

There’s a good chance you might require long-term care in the future, so let’s look at some of your options.

Overview: Federal vs. Private Long-Term Care Insurance

Just as there are retirement plans that only federal employees are privy to, the same applies to long-term care insurance. Federal long-term care insurance (FLTC) is only available to federal employees, while private long-term care insurance (PLTC) is available to anyone, including federal employees.

Let’s look at each individually and then draw some comparisons and conclusions.

Federal long-term care insurance

The U.S. Office of Personnel Management sponsors the federal long-term care insurance program. It is underwritten by the John Hancock Life and Health Insurance Company, and its administrator is Long Term Care Partners, LLC. 

John Hancock ultimately pays all of the claims filed under the program, and the company has solid financial ratings. John Hancock also has a stellar reputation and has provided insurance coverage for over 150 years. 

Even though FLTC is only available to federal employees (and their families) and not the general public, it’s still statistically the most extensive long-term care insurance in the United States.

Once eligible and receiving approved care, there’s a 90-day “elimination period” before any benefits are paid, making the elimination period similar to the deductible in a health insurance plan.

To be eligible for claims payment, the covered individual must be unable to perform two of these six activities of daily living:

• Bathing
• Caring for incontinence
• Dressing
• Eating
• Toileting (getting on or off the toilet)
• Transferring (getting in or out of a bed or chair)

Insured individuals must submit their claims no more than 12 months after they incur charges for any covered services, or by April 1st of the following year—whichever is later.

Individuals can also qualify for benefits if they have a severe cognitive impairment, such as dementia or Alzheimer’s disease.

FLTC coverage

FLTC coverage is considered comprehensive. It includes:

Choice of care: Care can be provided and received in an assisted living facility, nursing home, hospice facility, adult daycare center, and at home. It covers up to 100% of the maximum daily benefit amount.

Friends and family caregivers: As long as the caregiver is not a spouse or domestic partner and didn’t live with the insured when they became eligible to receive benefits, care can be provided at home by informal and unlicensed caregivers, such as friends and family. This care is covered for up to 500 days of care during the insured’s lifetime.

International benefits: Any care received outside the U.S. is covered, up to 100% of the maximum daily benefit amount.

Alternate plan of care: If the insured receives services not typically covered by FLTC, claims will be considered if they meet the insured’s needs and are considered to be cost-effective.

Stay-at-home benefit: Options that assist in-home care are covered up to 30 times the maximum daily benefit amount. These include:

• Emergency medical response systems
• Care planning visits
• Home modifications like installing wheelchair ramps
• Durable medical equipment (walkers, wheelchairs, hospital-style beds)
• Home safety checks

Caregiver training is also covered as part of the stay-at-home benefit, up to seven times the maximum daily benefit amount in the insured’s lifetime.

Private long-term care insurance

Private long-term care insurance can be bought directly from an insurance company or through a licensed agent. 

Though it’s not an often-seen employee benefit, some employers offer it as a group LTC plan at group rates. Qualifying for private LTC through a group is considered easier than qualifying as an individual.

How LTC works

To buy LTC, individuals complete an application and answer questions about their health status and conditions, both past and present. Insurers often ask for medical records if they are concerned about pre-existing medical conditions. They may also perform an interview by phone or face to face.

When applying, applicants choose the amount of coverage they want, which is usually capped with a daily limit and a total amount paid during an insured’s lifetime. Premium payments and coverage begin once an application is approved.

Similar to the Federal Long-Term Care Insurance plan, an insured becomes eligible for benefits when they’re unable to perform two of the six activities of daily living or suffer from dementia or other cognitive impairment. 

When a claim is submitted, the insurance company reviews medical records, and they have the option of sending a nurse to perform an evaluation. The insurer must approve the insured’s care plan before any claims are paid.

The elimination period (the period before the insurance company pays any benefits) is selected at the time of application. It can typically be 30, 60, or 90 days, whereas FLTC has a mandatory 90-day elimination period. During the elimination period, the insured pays for any costs incurred. 

The length of time benefits are paid out for an LTC plan is two, three, or five years, and there’s usually an option for lifetime coverage with no maximum benefit restriction. However, the FLTC plan no longer offers enrollees a lifetime coverage option.

Costs: Federal vs. Private Long-Term Care Insurance

Premiums for both federal and private long-term care insurance policies are based on a variety of factors:

• Age
• Gender
• Elimination period
• Daily maximum benefit amount
• Any other options selected by the insured

Since private long-term care insurance premiums are paid monthly and not by payroll deduction, insurance companies usually quote monthly premium rates, which are often paid by automatic bank draft. 

According to the 2020 price index from the American Association for Long-Term Care Insurance, a single 55-year-old male in good health who is purchasing new coverage will pay an average of $140 per month for an LTC policy with an initial maximum benefit amount of $164,000, which will compound annually at a rate of 3%. For the same LTC policy, a single female age 55 will pay an average of $220 per month. 

Prices can go up for both federal and private long-term care plans; they’re not guaranteed to remain constant during an insured’s lifetime. In past years, insurance companies have requested permission from the state regulators to raise their premiums, and those requests have been approved frequently.

Should You Get Federal Insurance, Private Insurance, or Neither?

The answer to this question depends on the amount of financial risk you’re willing to assume. The cost of receiving long-term care continues to climb, as you can see in the table below. 

2019 US national median long-term care support services costs:

People generally buy long-term care insurance to protect their savings. A retirement nest egg can quickly be depleted. The median cost of care in a semi-private room in a nursing home in 2020 is estimated to be over $93,000 per year.

Having long-term care insurance also gives you more options when you need care. If you need to rely on Medicaid, your choice of nursing homes is limited to only those that accept Medicaid payments. Medicaid doesn’t cover the cost of assisted living in many states.

Are There Any Alternatives to Federal Long-Term Care Insurance or Private Long-Term Care Insurance?

There are several options available other than the programs mentioned above.

Some life insurance companies offer life insurance policies or annuities that have a rider available offering limited long-term care benefits. 

Short-term care insurance, also known as convalescent insurance, offers lower daily benefits than traditional long-term care policies for shorter periods of time, such as one year or less. The premiums are correspondingly lower; for example, they’re about $100 per month for a 65-year-old.

Critical care insurance offers lump-sum cash payments to individuals diagnosed with cancer, heart attack, stroke, and other serious illnesses. Pre-existing conditions before the policy was approved aren’t covered. Several insurers will also pay daily or monthly benefits for inpatient rehabilitation and continuing care.

Get It While You Can

According to data from the National Association of Insurance Commissioners, about a dozen companies sell long-term care insurance today versus more than 100 companies in 2004. Many insurers left the market in 2008 because of low interest rates affecting their investment returns from long-term care premiums. It remains to be seen if the global pandemic will cause more carriers to leave the long-term care insurance market.