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AFSA Retiree Newsletter - April 2016
In this issue you will find:
- Legislative Proposals Affecting Retirees
- Tell the Foreign Service Story!
- Maximizing Your Lifetime Social Security Benefits
- Feds Vulnerable to Yet Another Means of Identity Theft
- Do I Need Long-Term Care Insurance?
As part of AFSA’s commitment to retired Foreign Service members, we are monitoring some of the issues that could potentially impact you and your family. Here are some bills impacting retirees that the Advocacy Department is monitoring during the 114th Congress:
- OPM Security Breach: To address some of the concerns raised by Federal employees, AFSA Champion Senator Ben Cardin (D-Md.) introduced S. 1746, the Reducing the Effects of the Cyberattack on OPM Victims Emergency Response Act of 2015 or the RECOVER Act. AFSA was one of the first organizations to endorse the bill, which seeks to expand lifetime coverage of credit monitoring and identity theft protection of no less than $5 million to all individuals affected by the security breaches at OPM. The house companion bill was introduced by Del. Eleanor Holmes Norton (D-D.C.).
- Pension Scam Protection: AFSA is also monitoring H.R. 3850, the Annuity Safety and Security under Reasonable Enforcement Act, introduced by Rep. Matt Cartwright (D-Penn.). The bill seeks to provide additional protections and disclosures to consumers when financial products or services are related to the consumers’ military or Federal pensions.
- CPI-E: Rep. Mike Honda (D-Calif.) introduced H.R. 3351, the CPI-E Act of 2015. The bill seeks to provide for cost-of-living increases for certain Federal benefits programs based on increases in the Consumer Price Index for the elderly.
What about the Federal budget resolution?
According to our colleagues at the National Active and Retired Federal Employees Association (NARFE), with whom we work closely on Federal employee retirement issues, the “ongoing budget negotiations threaten as much as $318 billion worth of cuts to Federal retirees’ and employees’ earned pay and benefits.” The 2017 Federal Budget Resolution includes some proposals that may have an impact on the future pay and retirement benefits of Federal employees. Three areas that we are paying close attention to, as related to retirees, are the proposal to reform civil service pensions, the call to end the special Social Security retirement supplement, and the idea of cutting the interest rate for the Thrift Savings Plan’s G-Fund. Although the budget resolution is seen as aspirational since it does not provide a detailed roadmap, some of these proposals, if not challenged at an early stage, can easily become law. And, as we know from experience, anything that impacts the civil service may eventually affect the Foreign Service.
What else is being proposed?
The budget resolution proposes a 10-percent reduction in the overall size of the Federal workforce by hiring at attrition. The proposal also calls for increasing the percentage of health premiums paid by retirees with fewer years of service, but specific details are lacking. There is also a call for the elimination of retirement annuities for new hires, which could have an impact on the Foreign Service Pension System.
What about Social Security?
There is no shortage of talk in Congress about changes to Social Security. With regard to the budget resolution, the authors state that Social Security will go insolvent in 2035 and that the Disability Insurance component will become insolvent in 2022; and requires (which is not enforceable since this is a resolution) “the President and Congress to begin the process of reforming Social Security by altering a current-law trigger that, in the event the Social Security program is not sustainable, requires the President, in conjunction with the Social Security Board of Trustees, to submit a plan for restoring balance to the fund.”
What are the chances of these proposals been implemented?
Once again, the proposals included in the Federal Budget resolution are aspirational in nature. Based on recent conversations we have had with key offices from both sides of the aisle we do not expect appropriators to implement them; particularly, given the political differences between the Executive and the Legislative Branches. Nonetheless, AFSA will continue to remain vigilant and advocate for Foreign Service retirees and their families.
Are you a member of the AFSA Speakers Bureau yet? Please consider signing up, and join the ranks of AFSA retirees who are energetically engaging the public, such as Michael Houlahan in Ohio and Ambassador Pat Butenis in New Jersey.
J. Michael Houlahan, a resident of Worthington, Ohio, has long been one of the Speakers Bureau’s most active members. In the last 18 months, he has volunteered to meet with at least 20 groups in his local area to discuss foreign policy issues and his own career in the Foreign Service. Ambassador Butenis, who also serves on the AFSA Governing Board, is similarly active. Since last fall, she has appeared in front of at least six groups in New Jersey and Philadelphia ranging from middle schools to her alma mater, the University of Pennsylvania.
The secret to their success is an eagerness to seek out groups in their communities who might be interested in hearing from a retired member of the Foreign Service. AFSA can easily connect Speakers Bureau members with groups who approach us with a specific request, but to get the most out of the experience, we highly recommend that you emulate the example of Mr. Houlahan and Ambassador Butenis and connect with schools, civic groups and other organizations in your area that would want to hear the Foreign Service perspective. As retirees, you are the ideal group to the story of the Foreign Service to the American public. If you haven’t already, please click here to sign up for the Speakers Bureau.
If you are 66 before May 2016, you can still use the “file and suspend” option to maximize your lifetime Social Security benefits, as well as those of your spouse, if you act before April 30, 2016.
For years, retirement planners have advised retiree couples that they might be able to maximize their lifetime Social Security benefits by using two popular options: “file and suspend,” and “restrict an application.” Essentially, the higher-earning spouse could “file and suspend” for their Social Security benefit once they had reached their full retirement age (FRA).
By suspending, their benefit would continue to increase by 8% per year until it reached its maximum, when they reached age 70. However, their lower earning spouse could then file a “restricted application’ for half of that suspended benefit and immediately begin receiving a monthly payment. When the higher earning spouse reached 70, they could begin collecting their maximum Social Security benefit, while the lower earning spouse could then collect half of that higher benefit. It’s also known as, “claim now, claim more later” - kind of like having your cake and eating it too.
But according to Certified Financial Planner and authority on Federal retirement benefits Ed Zurndorfer, “The Bipartisan Budget Act of 2015, enacted on November 2, 2015, amended Social Security provisions related to ‘deemed filing’ and benefit ‘suspension,’ in order to prevent individuals from obtaining larger Social Security retirement benefits than Congress intended.” Based on the 2015 Budget Act, a spouse will no longer be able to file a “restricted application” to collect benefits on the record of a higher earning spouse who “files and suspends” after April 29, 2016. Further, anyone born after Jan. 1, 1954 cannot file a “restricted application” for a spousal benefit, period, even if that person has reached their FRA. However, any beneficiary age 66 before May 2016 with a spouse age 62 before Jan. 2, 2016 may continue to enjoy the “file and suspend” option, provided they suspend before April 30, 2016.
You can visit www.socialsecurity.gov for more information or to actually initiate the strategy. For a far more comprehensive explanation, with illustrative examples, read Mr. Zurndorfer’s article on the subject. You can also reach him through www.myfederalretirement.com.
In recent months, AFSA has been diligently following the Office of Personnel Management’s (OPM) June announcements that a data breach had compromised security clearance files, including SF-86 forms and Personally Identifiable Information (PII), of many current and former Federal employees. The two June data breaches have left a total of 25.8 million individuals vulnerable to identity theft, and AFSA members have been rightfully concerned.
Last month, a discussion on Federal Employees’ susceptibility to medical identity theft in our online AFSA Community Open Forum further highlighted the importance of remaining diligent in monitoring and protecting personal transactions and records. Electronic Medical Records (EMRs) are currently being employed by 56 percent of all U.S. office-based physicians according to HealthIT.gov. While EMRs have been lauded as a tool in improving diagnosis and treatment through better information access and sharing, any information shared online is ultimately vulnerable to cybercriminals.
Within the first four months of 2015 alone, there were 82 instances of data breaches in the healthcare industry which exposed over 1.7 million records. Additionally, an online healthcare news website, Modern Healthcare, estimates that the medical records of almost one in eight Americans have been snared since the introduction of EMR technology. The problem will likely worsen over time, as medical research firm Kalorama Information has predicted that the $25 billion medical record industry will grow by an estimated 8% in 2016. The growth is largely due to the 2009 Health Information Technology for Economic and Clinical Health (HITECH) Act which put in place financial incentives for utilizing the EMR technology until 2015, and penalties for opting out beginning in 2016.
How can your medical records be compromised?
Similar to the OPM data breach, individuals’ names, addresses, birthdates and Social Security records risk becoming exposed by EMRs. This information, along with health records, records of hospital stays and health plan ID numbers, can be used in credit card and health insurance fraud.
If at any point you receive bills for medical treatments or procedures you did not receive, this is a clear indication that you may be a victim of health insurance fraud. You may also receive notification that you have reached your coverage limit for the year or a denial of coverage notification because a conflicting claim was filed to cover a medical service you had not filed for. Additionally, information obtained from EMR data breaches can be sold to pharmaceutical companies and other food and diet companies to be used in targeted marketing campaigns.
Ways to remain diligent
Always be wary of providing information to unsolicited callers. Ask that the caller identify the organization they are calling from and try to verify the legitimacy of the organization as well as the identity of the caller before providing any sort of information pertaining to you, your colleagues or your employees. Better yet, contact the organization yourself to confirm that it is, indeed, requesting such information from its clients. Do not trust caller ID. This advice is also applicable to any information you may be solicited for via email.
Obtain a copy of your medical records from your doctor, hospital, pharmacy and insurance company and check for any errors. You are also able to check if anyone else has requested a copy of your medical records by requesting an “Accounting of Disclosures.” You are entitled to one free copy of this record per year.
Consider enrolling in an identity monitoring, protection and resolution service. More preventative steps can be found on the Federal Trade Commission’s website, www.consumer.gov/idtheft.
As we approach retirement, many of us fail to appreciate a huge gap in our insurance coverage for a need most of us will experience: long term care (LTC). After age 65, Americans have a 70% chance of needing some LTC during their lives. LTC is non-skilled “custodial” care that helps with activities of daily living, such as dressing, eating, bathing, transferring, continence or toileting and/or supervision due to cognitive impairment, like Alzheimer’s disease. LTC insurance payments are triggered only when at least two of the activities of daily living come into play and/or cognitive impairment is confirmed.
While LTC can be provided by nursing homes, assisted living facilities, and adult day care centers, most care—about 80%—is provided at home by unpaid care givers, often cutting into caregivers’ own financial security. The average stay in a nursing facility is close to three years; when home care is added, the average period requiring LTC exceeds four years. Costs vary by region, but in the Washington, D.C., area, as of 2013, home care averaged more than $31,000 per year (based on five hours per day, five days per week; 24-hour care would average far more). By comparison, LTC in an assisted living facility averages more than $71,000 per year, $109,000 per year in a semiprivate nursing home.
Who will pay for that? Long term disability insurance replaces a worker’s income and helps pay living expenses, but not for LTC itself. Long term disability insurance also typically disappears in retirement. Health insurance generally only pays for skilled nursing care for patients getting better, not for those with deteriorating capabilities that will not likely be reversed. Provided that certain stipulations are met, Medicare may cover up to 100 days in a nursing home following at least three nights of hospitalization. The formerly common practice of the elderly transferring assets to kids, for the purposes of them qualifying for Medicaid, has become harder since the installation of a five-year scrutiny of asset transfers, or look-back period (guidelines vary by state). Further, it may be difficult for Foreign Service annuitants to qualify for Medicaid, based on their fairly significant annuity income. LTC may not be automatically provided by the Department of Veterans Affairs if the beneficiary is less than 70% service-connected disabled. So for many people, the choice is paying out-of-pocket or purchasing LTC insurance.
Of course, many of us expect our spouse to care for us when that time comes. But note, if your spouse cannot carry you now, he or she will not be able to carry you 10 or 15 years from now. You may need outside help. While LTC policies vary, the Federal Long Term Care Insurance Program (FLTCIP), for which Federal retirees are eligible, not only covers formal care provided by caregivers whose services are arranged and supervised by a home care agency, but also informal care provided by friends, family members (but not spouse or domestic partner), or private caregivers for up to 500 days (altogether). The FLTCIP will also pay for care in assisted living facilities, nursing homes, hospice facilities, and adult day care centers. Purchasers must make three key decisions when purchasing an LTC policy: 1) the daily benefit amount (DBA) ($100 to $450 per day in $50 increments), 2) the benefit period (two, three, five years, or unlimited), and 3) inflation protection (4% automatic compound inflation option (ACIO), 5% ACIO, or future purchase option (FPO), in which the basic rate stays the same but every two years, policy holders have the option to purchase increased coverage).
A lower DBA means lower premiums, and $150 is a popular DBA. Three years is the most popular benefit period. Thus, a policy to cover three years of LTC at $150 per day would provide a maximum lifetime benefit (MLB) of $164,250 ($150 x 1,095 days); five years of LTC at $150 per day would yield an MLB of $273,750 ($150 per day x 1,825 days). If one chooses ACIO protection, coverage grows each year while premiums are designed to remain level (but premium rates are not guaranteed). ACIO may make sense when a person is young, but for those who are older than 65, FPO allows for the purchase of an adjusted new plan every two years, albeit with a higher premium.
All LTC plans have waiting periods before LTC benefits kick in. In many cases, private insurance or Medicare covers some of that period. But in the worst case scenario, if none of it is covered, it is like a deductible, which must be satisfied before LTC benefits begin. The FLTCIP waiting period is 90 days and is satisfied for the life of the policy once it is met. The FLTCIP exempts hospice care and the stay-at-home benefit feature, which are paid from day one. The stay-at-home benefit feature is also an add-on benefit that does not eat into the MLB. It provides up to 30 times the DBA to enable care at home, such as home modifications, durable medical equipment, and caregiver training. Thus, a policy with a $150 DBA would have a stay-at-home benefit of up to $4,500 ($150 x 30). Policy holders can collect 80% of the DBA outside the United States.
There are pros and cons to purchasing LTC insurance, as detailed in this New York Times article from March 25, 2016, which contrasts the approaches of two senior professionals in the aging/health care fields. One decided to purchase LTC for himself and his wife in their 50s, in order to not become a burden on each other or their children if either one of them became ill or disabled. The other considered LTC and decided against it. But given the cost of custodial nursing care at $200 per day or more, retirees should have a plan B to self-insure, to come up with the $75,000 per year. Some alternatives include non-term life insurance policies that include an LTC benefit or LTC annuities one can purchase. The latter can be particularly cost-effective if one purchases a deferred annuity, betting on not needing LTC coverage for at least the next 10 years or so. Continuing care retirement communities are also a potential solution, depending on what conditions are covered.
LTC insurance is only offered to individuals; couples may well have different plans, based on individual needs. Coverage is fully portable and payroll/annuity deduction is available. One can apply at any time for LTC insurance, although the younger a person is, the lower the premium. And since the FLTCIP is a medically underwritten policy, certain medical conditions, or combinations of conditions, may prevent some people from being approved for coverage. If a person waits too long, a change in health could prevent the approval for coverage. One cannot apply for LTC insurance if currently in long term care, using oxygen, or suffering from some other specific disqualifiers. The average age to purchase LTC is 52, down from 57 when the FLTCIP was launched in 2002.
Many members of the Federal family are eligible to apply for coverage under the FLTCIP, including Federal and U.S. Postal Service employees and annuitants, active and retired members of the uniformed services, and qualified relatives. Once purchased, the FLTCIP policy is good as long as premiums are paid. FLTCIP premiums are the same for men and women (in the private sector, women often pay more). Premium payments stop during any period one is receiving LTC benefits, and resume when the benefit period is over.
Please visit www.LTCFEDS.com for more information or call 1-800-LTC-FEDS (1-800-582-3337), TTY 1-800-843-3557. AFSA wishes to thank FLTCIP Senior Account Manager Jeannie Singleton for providing much of this information as well as her careful review of this content for accuracy.
Contact us at firstname.lastname@example.org or (202) 338-4045.