If you’re considering buying a policy under the Federal Long Term Care Insurance Program—you can enroll anytime—one major issue will be inflation protection. Unlike the federal retirement program, for example, benefits under the FLTCIP are not automatically adjusted; you have to select whether you want inflation protection, and you have to pay for it.
The program offers two types of inflation protection. One, called automatic inflation protection, increases the payable benefit annually by either 4 5 percent—regardless of what inflation does during that period.
The other option is called the future purchase option. Every two years, those choosing that option will have the opportunity to buy additional coverage, with the increase based on the actual change in a medical inflation index over that period.
The price difference can be substantial, possibly making the future purchase option attractive to those who believe they want LTC coverage but who are concerned about the price.
However, the future purchase option over time can cost an enrollee as much if not more than the automatic inflation feature. Under the automatic feature, premiums are fixed for life at the age of purchase. Under the future purchase option, those choosing to buy additional coverage when given the opportunity will have to pay higher premiums, not only based on the higher dollar amount of coverage they are buying but also based on their age at the time of the new purchase.
Those choosing the future purchase option can of course decline to buy the additional coverage. But they should be aware that over the potential many years between the initial purchase and the time they will need the benefit the value of the benefit may have eroded significantly. Also, those who decline more than two opportunities to increase benefits would have to show "satisfactory evidence of insurability" before taking out higher coverage.
