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LTC, Medicare and health care reform

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The Obama Administration’s new health care bill has created some important Medicare changes, but your clients need to know that LTC coverage is still not a given for all Americans. Help them formulate a plan to get the coverage they need.

A new world has emerged in the wake of the new Obama health care reform bill, although plenty of confusion still remains on what is (and is not) covered. As the bill was being debated, a long term care insurance provision was included, but it wasn’t taken seriously at the time. In the end, that part of the health care bill–the Community Living Assistance Services and Supports Act (CLASS Act)–did survive and in fact become law, creating a voluntary, government-run LTCI program for all “actively at work” employees.

People who are planning for LTC today should investigate all areas of funding sources and project those into the future. After they have done that, a logical conclusion is to consider LTCI to support the expense of possible future care. But in order to have a clearer idea of what the future (and the future, partially government-paid model) holds for LTCI in America, you and your clients need to talk about a few key points:

What will Medicare pay?
1. Discuss the current model of LTC financing and the problems it’s facing. One of the biggest misconceptions about LTC is that Medicare pays for it. Although Medicare in the past has paid a large portion of LTC bills, especially for home health care, what will the Medicare LTC benefit be like when your client needs care? For starters, the new health care bill aims to reduce Medicare payments for home health care by $40 billion over 10 years. Will Medicare pay for most LTC? Government websites such as and support the fact that it won’t.

If Medicare is not paying the majority of LTC bills, who is? The answer currently is Medicaid. Medicaid often pays for LTC after someone has exhausted his assets and reduced his income to qualify. The problem with Medicaid is that it’s state-based and subject to the ever-changing financial conditions of each state. How can you count on a program that is so subject to change? Those who bypassed LTCI and had an attorney plan for Medicaid probably didn’t realize the rules could change so dramatically. Of course, even if you can qualify with some planning, realize that Medicaid reimbursements are often less than the cost of care, leaving many care facilities and providers opting out of the program and accepting private pay dollars only–a trend that will probably only accelerate.

More data on the CLASS Act
2. Discuss how the recently passed health bill addresses LTC needs. Most purchasers of LTCI are very well-informed, and may have read about the CLASS Act and its impact on LTC. However, in my experience reading mainstream media, many reporters have not researched deep enough into the details of the plan. There are several key things to keep in mind about the voluntary CLASS program.
First, it probably will not be available until October of 2012, at the earliest. Participants also need to pay in for five years before any benefits can be collected. Unfortunately, long term care needs are events that can happen anytime and your client would be at a great risk to wait.

Second, the plan is guaranteed issue with no medical underwriting. Although this sounds like a great thing, in reality, having no underwriting with a voluntary LTC plan will be problematic for actuaries. Because private insurance medically underwrites, it will be able to offer more competitive rates. Healthy people will gravitate toward private coverage, while the uninsurable will look to the CLASS plan. The result–a classic insurance “death spiral” that will eventually need bailing out, which is the assessment of the chief actuary of Medicare.

Mind the gap
3. Finally, the benefit levels being offered ($50 to $75 per day) cover only a fraction of the current daily cost of care. According to an April 2010 cost survey by Genworth, the average cost for a home health care shift is $216 per day. At a minimum, those who are insurable now, but still have interest in the CLASS program, will need to plan for that gap.

Helping people understand and accept the changes in fiscal reality will help them to be better prepared to look at their own situation and plan. The next step is discussing their personal planning options and designing something appropriate and specific for them. However, as things do change, clients are best served if the initial planning and implementation of an LTCI plan are followed up by periodic annual reviews to ensure that the plan is working well.

Tom Riekse Jr., CEBS, ChFC, is managing principal at LTCI Partners. responses and questions can be sent to [email protected].

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