Minimizing LTC Premiums, Maybe...

Wednesday - 9/16/2009, 4:00am EDT

Upgrading, or applying for, a fire insurance policy is best done before your house goes up in smoke. Likewise, a life insurance policy is more likely to pay to your beneficiary if you had the foresight to sign up and start paying premiums while you were still alive.

The point: Retroactive life, health, or homeowners insurance is hard to come by. Most insurance is. For a reason.

With that in mind, federal workers who even think they might want to get Long Term Care Insurance via Uncle Sam sometime in the future might want to act quickly to insure they pay the lowest premium possible. That's the advice of Arthur Stein, a financial planner and LTC insurance expert.

He's advising feds to enroll now, before September 30, in the current LTC program even though premiums for many will go up 5 to 25 percent next year. The current contract has been in effect for 7 years and premiums were not raised. To be part of it individuals must enroll and be accepted by Sept. 30, according to Stein.

Here's why:

  • The new federal contract is already in effect. The new policy is the only one sold after the end of this month.

  • On January 1, a premium increase goes into affect for anyone insured under the current policy who was younger than 70 when they purchased and purchased the 5% compound inflation adjustment (ACIO).

    "Another reason to enroll now ," he says "is health. Someone could have an accident or illness within the next two weeks. Alternatively, the underwriting standards under the new contract may be more (or less) stringent than under the old one."

  • Potential future rate increases could occur when this second contract ends, when the insurance company evokes the Catastrophic Event clause or anytime OPM and LTC Partners agree to do so.

    "Premiums can increase if you are among a group of enrollees whose premium is determined to be inadequate and both OPM and John Hancock agree to the rate change. Because this is a Federal program established under Federal law, the States play no role in approving rates or otherwise regulating the insurance coverage. Premiums can become inadequate if program experience differs from the assumptions used to establish the premium rates. For example, if the assumptions project an investment rate much higher than the actual experience, rates may need to change."

The September 30 deadline is the date applications must be received by regular mail at LTC Partners. Applications are no longer available online, so give yourself lots of time to do this.

Enrolling, even though the current contract is about to expire, might mean people could "lock in your ability to get into the current program" and that may give you a price advantage when the new program goes into effect.

OPM has said that the new LTC premiums will go up 25 percent for people 65 and under; 20 percent if they are 66; 15 percent of you are 67; 10 percent if you are 68; 5 percent if you are 69. There will be no increase for individuals 70 and older.

Stein also recommends that feds shop around for LTC coverage outside of the government. At one time dozens of companies offered LTC insurance. But as people live longer, and medical treatment gets better (and costs go higher) many companies decided LTC insurance is not a good business to be in.

The possibility of saving premium dollars, and the comfort that goes with LTC are good reasons that lots of feds who aren't covered now (because they believe they are too young, too healthy or not the type that has accidents or an early stroke) should maybe think again.

Stein says that for feds the smart thing is to position themselves so that, if there is any advantage to being in the current program they will be eligible to continue that coverage with what might be more favorable rates than if they enroll during the November-December open season.

For more on the upcoming benefits open season, and the LTC program, listen to our Your Turn with Mike Causey radio program today at 10 a.m. That's worldwide at www.federalnewsradio.com or at WFED 1500 AM in the Washington area. Arthur Stein will talk about the current and upcoming LTC program and explain why it might pay off to sign up now. If you have questions call in, or e-mail me at: mcausey@federalnewsradio.com

Nearly Useless Factoid
by Suzanne Kubota

Among his many other accomplishments, Benjamin Franklin "pioneered the development of organized risk-bearing in the United States by initiation of the first incorporated fire insurance company of America" and, as a result, is a member of the Insurance Hall of Fame.

To reach me: mcausey@federalnewsradio.com