Shop around

When politicians two years ago promised that the federal long-term care insurance program would offer coverage at rates 20 percent below the rates available to people in the marketplace, one federal employee decided to wait for the new program before getting coverage for himself and his wife.

Now that the Office of Personnel Management has announced rates for federal long-term care insurance, the employee is sorry he waited. He compared the federal program's rates, announced last month, with the rates offered by John Hancock and found that he would be better off going with the John Hancock program. "I am stunned by the real costs of the federal program," the employee said.

The employee's discovery offers an important lesson to anyone considering coverage in the new federal long-term care insurance program: You had better shop around. Some people may be better off signing up for the federal program. Others will find plans that better meet their needs at lower costs through other long-term care insurance providers.

The New Program

Long-term care insurance covers day-to-day care for people who develop chronic illnesses. If you develop Alzheimer's Disease, for example, then a long-term care policy could provide you with several years of assistive care, such as nursing home care, an assistant to help you bathe, eat and dress, or home health care by a relative. Policies typically offer coverage of a certain amount a day--$150 per day, for example.

Long-term care insurance can be expensive, with premiums for older people costing several thousand dollars per year. Although employers are increasingly offering group long-term care insurance as a benefit, most people purchase individual policies on the open market.

In 2000, Congress passed a law that ordered OPM to set up a federal group long-term care insurance program, with the goal of offering premiums at 15 percent to 20 percent below open market rates. The program would be open to federal employees, postal workers, military personnel, federal, postal and military retirees, the spouses of current workers and retirees, surviving spouses, adult children of current workers and retirees, and parents, parents-in-law and step-parents of current workers.

OPM selected Long-Term Care Partners, a Portsmouth, N.H.-based company formed by John Hancock Financial Services Inc. and Metropolitan Life Insurance Company to run the federal program.

Last month, OPM and Long-Term Care Partners announced an early enrollment period for people who know a lot about long-term care insurance. The enrollment period runs from March 25 to May 15. An official open season, during which OPM and the company will run educational campaigns for federal workers, will start on July 1 and go until Dec. 31.

Paul Forte, CEO of Long-Term Care Partners, said last month that, considering the wide variety of policies available on the market, the federal program's premiums were on average about 15 percent to 20 percent below market rates.

Employees and retirees can learn more about the program at www.ltcfeds.com, the Long-Term Care Partners Web site.

Other Options

Policies vary by how much of a daily benefit they offer ($100, $150, etc.), how long benefits would be available (three years, five years, an unlimited amount of time), whether they cover the full cost of home health care (or only 75 percent or 80 percent, etc.), whether they offer inflation protection, how long you have to use long-term care before the policy will take effect (deductible periods ranging from 0 to 100 days), and how much control you have over how the daily benefit gets spent, among other variables.

The Health Insurance Association of America has published a guide to shopping for long-term care insurance, with 17 sets of questions for people to ask of long-term care insurance. See the guide on the association's Web site.

Managers at two competing companies, New York Life and Mutual of Omaha, said they think their plans are competitive with the federal program. "Some of the rates for the federal plan are very, very competitive for ages 70 and up, but it seems the private market is more competitive at ages 60 and under," said David Gregg, product manager for long-term care at Mutual of Omaha. "Just because there's a group program available doesn't mean there's no need to shop around."

Gregg pointed out that the federal program covers home care costs up to 75 percent of the daily amount available for nursing home care, while other programs offer the same daily benefit for home care and nursing home care. People have to decide whether they think 75 percent would be enough or whether they would need more coverage for home care.

Ken Grubb, a long-term care manager with New York Life, said many programs on the open market offer preferred discounts for healthy people or for couples who both obtain insurance, while the federal program doesn't offer such discounts.

One advantage of the federal program is that there is less underwriting for current workers and their spouses. That means there are fewer reasons someone would be disqualified from getting long-term care through the government. But people with certain pre-existing conditions, including multiple sclerosis and even the regular use of a wheelchair, cannot apply for federal long-term care insurance during the early enrollment period. An option for people with pre-existing conditions will be available during the official open season later in the year, according to materials published by Long-Term Care Partners.

Evaluate the Need

Some workers may not even need long-term care insurance. If you make less than $50,000 a year and have less than $100,000 in assets, some experts say long-term care insurance is not a good buy.

Long-term care insurance is a way to protect a person's assets from being drained by the high cost of long-term care. If you don't have many assets, the cost of premiums may outweigh their benefits.

Over the next few months, Pay and Benefits Watch will periodically discuss issues related to long-term care insurance to help people make better decisions.