Long-Term Care - The Class Act
On Friday, October 14th, 2011, the Obama Administration announced that they will
not implement the CLASS Act, a voluntary long-term care insurance program that
was a key priority of the late Ted Kennedy, and which was instituted as part of the
Affordable Care Act.
The initiative, known as the CLASS Act, was included in the law to help Americans cover
the cost of aid for daily-living needs such as bathing, using the toilet, dressing,
eating, transferring and grooming if they became unable to care for themselves.
The importance of long-term care planning cannot be overstated for each and every
individual turning 65 at the rate of 10,000 per day for the next 18 years. We will
continue to keep you updated on the future of the CLASS Act.
On December 21, 2009, the U.S. Senate garnered
the 60 votes necessary to bring its healthcare bill to a vote. Buried on page 1,926 of the
bill, is a provision for Long Term Care coverage under the CLASS Act. The CLASS Act is also
in the U.S. House of Representatives bill passed in early November.
The new Long Term Care program — called the
Community Living Assistance Services and Supports (CLASS) Act — as part of the health care
reform law has generated much discussion among consumers, employers, and the financial
professionals who offer LTC insurance to their clients.
This is an important time to become well
versed on the details of the LTC CLASS Act as financial professionals will play an important
role in assisting their clients with the implementation of some form of LTC program.
Enrollment under the CLASS Act will be offered through employers. For employers who choose to
participate in the Long Term Care program offered under the CLASS Act, their employees will be
automatically enrolled and premiums collected via payroll deduction. Employees can then choose to
opt out without penalty. In the future, there will be designated enrollment and disenrollment
periods. The CLASS program will be available on a Guaranteed Issue basis to all actively-at-work
individuals who are at least 18 years of age. Proof of health will not be required.
The plan will require that enrollees be employed and earning wages for at least three years, and
pay into the system for five years before becoming eligible to collect benefits. As a result, the
requirement that wages be earned for three years could potentially impede access to the CLASS
program for those employees closest to retirement or for those unable to work. Additionally, the
Congressional Budget Office which evaluates the costs of legislation such as the Senate reform bill
has identified shortfalls in the funding of the program. Based on 10-year periods, the CLASS Act —
which would begin collecting premiums in 2011 but may not begin payouts until 2018 — appears to
generate $72.5 billion in savings between 2010 and 2019. On paper, these savings are used to offset
spending in the bill, which even CLASS Act supporters admit has the appearance of budget
Premiums collected would be invested in federal securities, and when the interest earned is
transferred back to the CLASS Act trust fund, the transaction would be recorded as an increase in
the deficit. The Senate bill also requires that the CLASS Act trust fund be solvent over a 75-year
period, and the bill would give the Secretary of Health and Human Services the power to raise
premiums and reduce benefits to keep it afloat. The revised CBO estimate of premiums required to
support the CLASS program is approximately $120 per month, although a chief actuary for the
Medicare program recently suggested beginning premiums would have to be $240 per month for the
program to have long-term viability.
With no underwriting requirements and no indication of how many people will participate in the
CLASS program, it’s difficult to determine whether there will be enough participation by “healthy”
people to sufficiently fund future claims. The law permits CLASS premiums to be increased yearly
(if needed) to ensure that the CLASS program remains viable. This doesn’t create the same level of
consumer representation that insurance buyers typically receive when buying private insurance
products filed with the State Insurance Departments.
The benefits under the CLASS Act would be funded by the premiums paid by enrolled participants, and
would pay enrollees $50 or more per day if they became too disabled to perform normal activities of
daily living, and would pay this benefit as long as the individual remains disabled. Exact benefits
will be based on the degree of impairment, and should increase annually based upon the changes in
the Consumer Price Index (CPI). Unfortunately, these benefits may not be adequate to meet the needs
of many individuals, especially when you consider the average cost of custodial care today is
$225/day, whether receiving care in a facility or assistance in one’s own home.
The benefit paid under the CLASS program will be a cash benefit which could be applied to
nursing-home care, but in an effort to encourage enrollees to stay in their own homes, payouts
could cover such things as wheelchair ramps and wages for home health care aides.
The program is meant to provide access to coverage for individuals who could not secure coverage in
the private LTC market. Private LTC policies will continue to be more cost competitive, and provide
richer benefits. However, if the CLASS Act does pass thereby providing consumers with some basic
level of coverage, the program would be viewed much like Social Security, as a building block for
Regardless, employers are going to need help with the review and implementation of a Long Term Care
Insurance program for their firm. If the government plans to offer employers an opportunity to
participate in the CLASS program, the decision makers will need to know more about the program
before they accept or reject the offer. If an employer chooses to participate in the CLASS program,
they will need experienced LTC professionals to assist with the education and roll-out of the
benefit. In addition, the competitive products in the private marketplace will continue to provide
LTC professionals with an opportunity to deliver quality LTC coverage alternatives for most
LTC professionals can offer employers something they can’t get under the CLASS program; you can
offer them coverage now. The CLASS program is not operational, and has a five year minimum pay-in
period. Consumers have a heightened awareness towards asset preservation, and most consumers
recognize the burden of providing access to care is on them. The expanded state Long Term Care
Partnership programs and a new roll-out in 2010 of the federal LTC plan for federal employees,
highlights that the need for private LTC Insurance continues to exist. The fact that LTC is in the
Health Care Reform bill shows you just how important of an issue financing long term health care
has become, even if only on page 1,926.
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