The CLASS Act and LTCI: How to Prepare

Despite big concerns by many actuaries about the sustainability of the CLASS Act – the government-run voluntary long term care insurance program – things are moving full steam ahead in Washington, and it’s an issue affecting all of us in the LTC business, in one way or another.

For those not familiar, here’s a quick summary of the CLASS Act: It is part of the health reform bill, and will likely start accepting enrollees as of Jan. 1, 2013. The program benefits are legislated to average a minimum of $50 per day in cash benefits, although the law gives broad discretion in possibly offering higher benefit options. Premiums have yet to be determined, as this start-up LTC insurer hires actuaries to help price its product. The rates need to be determined by October 2012 and it’s been hinted that premiums will increase with age. The benefit triggers should be similar to private tax-qualified LTC coverage.

Unlike health insurance, this public option will not be available for sale through agents and advisors, but instead will be available only through employer payroll deductions, with a yet to be determined enrollment method for the self-employed and for those whose employers don’t offer the plan.

What the CLASS Act means for agents

Given these sales restrictions, why do many in the LTC insurance business believe this is the best opportunity for increased private LTC sales since HIPAA made long term care insurance a tax-qualified product? Here are some of the key reasons:

1. Private LTC should compete well against the CLASS plan – an offering that, by law, has no medical underwriting. Although the CLASS plan does have some provision to guard against adverse selection, such as having a five-year wait period for benefits and a possible $12,000 actively-at-work requirement, there is no substitute for medical underwriting. Medical underwriting, spousal discounts, and other underwriting criteria used by insurance carriers will help private LTC compete on price and benefits. One question this raises: will consumers prefer to be a part of the healthy underwritten pool or the unhealthy one?

2. A massive public awareness effort will raise the concern of all LTC planning. According to TheHill.com, the Administration on Aging plans to spend $93 million on an information and awareness campaign in 2012. Similar awareness campaigns on a state level, such as the Own Your Future campaigns, have resulted in increased sales of LTC in those states. While the purpose of the CLASS Act campaign is to increase participation in the program, the ultimate effect will be to shine a spotlight on LTC financing issues.

3. Employers will need to make a choice. The creators of the CLASS program are counting on employers to participate in an auto-enrollment system for employees, similar to 401(k) “opt-out” plans. Employers will be looking for advice – do they enroll in CLASS, enroll in a private group LTC plan, offer both, or do nothing?

Smart advisors will take advantage of the time until CLASS launches to learn more about the program through resources such as advanceclass.org. In addition, they will look at the current individual and group LTC products available to understand how they might compliment or compete with CLASS. With proper research and planning, you can be fully prepared for how this act might affect your business.