The health bill package includes provisions that could impact long term care insurance sales. President Obama signed into law the giant Patient Protection and Affordable Care Act that the Senate passed early on Christmas Eve, 2009. The new law includes the Community Living Assistance Services and Supports Act (CLASS). The CLASS Act is intended to provide a lifetime cash benefit that offers people with disabilities some protection against the costs of paying for long term services and supports, and helps them remain in their homes and communities. It is a self-funded, insurance program with enrollment for people who are currently employed. Premiums will be paid through payroll deductions if an individual’s employer decides to participate in the program. Participation by workers is entirely voluntary. Self-employed people or those whose employers do not offer the benefit will also be able to join the CLASS program through a government payment mechanism.
Under CLASS, individuals qualify to receive benefits when they need help with certain activities of daily living, have paid premiums for five years, and have worked at least three of those five years. Qualified individuals will a receive a lifetime cash benefit based on the degree of impairment, which is expected to average between $50 and $75 a day or more than $27,000 per year. This benefit can be used to maintain independence at home or in the community, and should be sufficient to cover typical costs of home care services or adult day care. The qualified individual's benefits can also be used to offset the costs of assisted living and nursing home care.
Many experts, including actuaries at the government's own Centers for Medicare and Medicaid Services, have argued that a combination of relatively rich benefits and the opt-out provision make the program actuarially unsound, by encouraging workers with health problems to flock to the program and healthy young workers to opt out. Of course, it is possible that the provisions of CLASS will be amended by the reconciliation bill currently under consideration by the Senate.
Long term care insurance professionals are trying to resolve how the program might actually work and whether CLASS will be attractive to employers and consumers. Obviously, until premium and benefit levels, and requirements on employers are established, it is difficult to predict exactly how CLASS will affect the LTCI market.
One possible positive effect of CLASS could come from better awareness among individuals of the risks of long term care, and the need to plan for the risk. It is also likely that the market will develop new LTC insurance plans to supplement CLASS coverage.
An obvious negative effect of CLASS is that the mere uncertainty could stifle new sales as consumers await what they hope will be cheaper or better insurance through CLASS. Moreover, low CLASS premiums might cause consumers to opt for CLASS coverage and abandon existing plans, or reject future plans. Further, consumers might misunderstand the limited benefits of CLASS, and rely upon CLASS benefits rather than opting for more comprehensive or better coverage.
Regardless, LTCI agents should familiarize themselves with CLASS, and be prepared to educate their clients about the possible impact of CLASS.
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