FLTCIP seems to be unable to evolve to keep up with competition in the private market, including hybrid policies. Here’s how you can help feds save for future LTC expenses.
The Federal Long‑Term Care Insurance Program (FLTCIP) suspended new applications until December 19, 2026, and current enrollees had to stomach a premium increases in 2024 that rose, on average, 86% to keep coverage. What happens at the end of this year is uncertain for now, but what remains clear is the program seems to be failing because better options became available in the private market.
Less than 0.1% of the 11 million eligible federal employees, retirees, and family members are enrolled in FLTCIP. And that is largely because the program cannot currently price long‑term care risk in a way that is stable, sustainable, or competitive.
After the Failure of FLTCIP 3.0, the Future Seems Bleak
OPM renegotiates the FLTCIP contract with John Hancock every seven years. Each renegotiation has historically triggered severe premium shocks:
- 2022: Premiums rose 86% on average and the policy provider stopped accepting new contracts.
- 2016: Premiums rose 83% on average, with some increases reaching 126%.
In 2019, OPM introduced FLTCIP 3.0 with “premium stabilization” features intended to smooth volatility. Those mechanisms failed to attract enough new applicants. The 2024 rate hikes prove that the program’s pricing model still cannot withstand long‑term care market pressures.
When employees experience a premium hike, they have three options, each with considerable consequences.
Option 1. Absorb the Premium Increase
Rate hikes are typically phased in over three years. For some clients, especially those with strong cash flow and robust coverage, absorbing the increase may preserve the most valuable benefits. If they’ve been paying into the program for several years, eating that loss could be too much of a hit to take financially.
Option 2. Reduce Coverage to Maintain Premium
This is the most common response, but likely the most consequential.
Example: A client reducing their Automatic Compound Inflation (ACI) from 4% to 1.88% will see their daily benefit grow to only $249/day by 2053. OPM projects average daily care costs will reach $396/day by that same year. This gap compounds over decades.
Option 3. Leave the Program
Some clients have already chosen to exit entirely, especially if the premium increases were unaffordable. Advisors must help them understand the implications: once they leave, they cannot re‑enter unless the suspension lifts, but future pricing is uncertain. FLTCIP, if it continues to exist at all, will likely be restructured upon its return. Ditching an existing policy isn’t a terrible decision, but then another solution to future LTC needs will be needed.
Featured: Alternative Strategies for Future LTC Expenses
With FLTCIP unstable, advisors must help federal employees build diversified, resilient long‑term care strategies. Here are some possible routes to guide clients:
Self‑Insuring with Tax Advantage: Basically, help them invest the money in a way that would’ve been spent on premiums is available in the case that LTC costs arise. Here are some possible ways to assist:
- Maximize employer retirement matching (TSP, 401(k), 403(b)).
- Use Traditional vs. Roth IRA strategies to create tax‑efficient future healthcare funding.
- Build liquidity buckets specifically earmarked for care.
Private Hybrid / Asset‑Based LTC Plans: These plans combine life insurance with LTC riders, eliminating the “use‑it‑or‑lose‑it” problem that exists with FLTCIP policies. If care is never needed, clients retain:
- A death benefit
- A return‑of‑premium feature
- Or a cash value component
LTC Annuities: Besides This is often the most compelling alternative for federal families who want predictability.
LTC insurance policies, there are products similar to hybrid life insurance plans, but instead of life insurance, they’re getting an annuity with a guaranteed income stream.
- Immediate annuities: Create guaranteed income streams to fund care.
- Deferred LTC annuities: Grow tax‑qualified LTC funds over time.
Interested in offering affordable options to your clients and leads? Schedule a free consultation here
Other Limitations to the FLTCIP
Even if the Federal Long Term Care Insurance Program comes back online, it may face the same current limitations of this old-style insurance program. The limitations include:
-No multi person discounts
-The government owns the policy, the employee gets a contract
-Does not meet any state partnership rules
-Limitations with coverage and premium as discussed above
Helping employees understand the limitations is the key to providing them with the correct solution that meets the goal that they intended for this program.
