FINANCIAL LIFE | FALL 2011 EFFECT

Health Reform’s CLASS Act Offers
Long-Term Care Coverage

by Mark Lewis

The Patient Protection and Affordable Care Act (PPACA or health reform) passed by Congress in 2010 includes a provision for long-term care coverage under the Community Living Assistance Services and Supports Act (CLASS Act). This new program allows for the creation of a voluntary government plan that provides a limited form of long-term care coverage, once certain requirements are met. The CLASS Act is not expected to be operational until 2013 when the plan details and administrative infrastructure have been fully developed by the U.S. Department of Health and Human Services (HHS).

Debate about the program continues on Capitol Hill, with opponents questioning its cost and viability. HHS Secretary Kathleen Sebelius, has stated that the program will have to undergo some regulatory changes to ensure future fiscal solvency. In a January 8, 2010, memorandum, Chief Actuary of the Centers for Medicare & Medicaid Services (CMS) Richard S. Foster estimated the financial effects of the PPACA. Foster wrote:

“In general, voluntary, unsubsidized, and non-underwritten insurance programs, such as CLASS face a significant risk of failure … . Individuals with health problems … would be more likely to participate than those in better-than-average health. Setting the premium at a rate sufficient to cover the costs for such a group further discourages persons in better health from participating, thereby leading to additional premium increases. ”

Foster believes this could ultimately make the program unsustainable.

One of the stated purposes of the CLASS Act is to help individuals with functional limitations maintain their personal and financial independence. However, the program may not be the best solution for healthy people seeking coverage that adequately protects them if they need long-term care in the future. People investigating long-term care options should look closely at the following factors.

Is coverage aligned with cost of care in your area?

In other words, will the benefits pay for what you need? Cost of care varies considerably depending on where you live in the country and whether you are located in an urban or rural area. The John Hancock 2011 Cost of Care Survey published in April found that the national average cost for one year in a nursing home is currently $85,775 with a nine-year average annual increase of 3.5 percent. The CLASS benefit plan has not been defined, although the law states that the cash benefit could be as low as $50 per day on average, and the Congressional Budget Office estimates benefit payments will average about $75/day, or roughly $27,000 per year. In addition, the payments will come out of a trust fund comprised of premium payments, which by law cannot be subsidized by taxpayer money. So payment amounts will be based largely on how successful the program is at attracting new participants, rather than the benefit needs of the people receiving benefits.

Will you have access to coverage when you need it?

The CLASS Act stipulates that participants would need to pay premiums into the program for five years and must earn wages for at least three of those years before they could be eligible for benefits.

Can you purchase coverage at any age, especially close to or during retirement?

The CLASS program is designed for actively at work employees (not retirees, those about to retire, or family members). If you’re not in this category, you aren’t eligible for this program.

Is the coverage affordable?

Although final premiums have yet to be determined, Foster has estimated they would probably average about $240 per month to adequately fund the CLASS program. It is hard to know whether that is a reasonable cost until the details are spelled out.

In the years to come, consumer awareness of the costs of long-term care will continue to increase. As more details about the CLASS Act emerge, younger Baby Boomers will have to evaluate their long-term care needs to determine if the program will be beneficial to them.

The long-term care planning process can be emotional. It also requires a detailed review and analysis of your objectives, financial disposition, and risk tolerance. The HHS National Clearinghouse for Long-Term Care Information reports that 70 percent of the people who reach age 65 will require long-term care services at some point in their lives. So the question is not really if you will need care, but how long will you need it, and how much you want to pay out of pocket for it.

As people age, their health care needs can change rapidly, and in turn, their perspective on long-term care is altered. Although you may not have to make a decision on long-term care today, it’s important to stay informed as the details of the CLASS program are rolled out. Start talking about your options with a financial advisor in the near future so you will be able to develop and evaluate your plans as your needs change.

 

 

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