Reprinted from the June 2010  NorthWest Business Monthly

Weighing the Pros and Cons of Federal or Private Insurance

By Lisa Schork, CLTC

The Class Act (“Class”), a little known provision of the Health Care Reform Act, is the first national plan for long-term care insurance. Call it an homage to the legacy of Senator Kennedy.   I am of mixed minds about bill’s intent and potential for success.  Having said that ….let’s look at some of the issues and facts surrounding the Class Act:

Q. Who’s eligible to enroll?

A. The simplest answer: Working people. Participants have to pay premiums for five years, the so-called vesting period, before they can receive benefits, and they have to continue working for three of those five.  The program doesn’t start until 2013 so we are looking at those choosing or needing to work for an additional 8-9 years at least.

Q. What if you already have an illness or disability and need care?

A. You can still enroll, as long as you can work for three years and pay premiums for five. Class doesn’t exclude people with health problems; in fact, the law specifically prohibits such underwriting.

Q. What will it cost?

A. Hmm…. Good question.  In November of last year the Congressional Budget Office analyzed Class and it assumed a $123 average monthly premium (less for young enrollees, $15 per month and over $240 per month for older enrollees.); it also assumed, conservatively, that only 5 to 6 percent of those eligible to participate actually would. If more people enroll — and Class is an opt-out program, so IF your employer participates, you’re automatically included unless you decline — the premiums will be lower. With far fewer people in the risk pool, premiums will go much higher. 

Q.  What will it provide?

A.  The assumption is a cash benefit of $50-75/ day, available once a participant needed help with two to three ADL’s or Activities of Daily Living (eating, bathing, dressing, toileting, transferring from bed to chair to wheelchair, or maintaining continence), or assistance needed because of cognitive impairment. These definitions will significantly affect eligibility.  Keep in mind that over 50% of persons over the age of 85 are diagnosed with Cognitive Impairment.

Q.  BIG Questions….What if sick and old people sign up for Class coverage but young and healthy people don’t?

A.  This is the big fear — its’ called “adverse selection” — and it’s a legitimate one. People whom no private insurer would accept —well, they’d be foolish not to sign up.  But that’s OK, as long as enough other Americans sign up and pay premiums, creating a balanced risk pool.   And as it only covers working people, the truly needy are selected against.  Both the CBO (Congressional Budget Office) and the Actuary from Medicare have expressed their misgivings that there is a "severe risk" of adverse selection which would put the whole CLASS program in jeopardy. 

Q. What happens if adverse selection prevails?

A.  This program will by necessity morph throughout the years until and after 2013, and change again as the actuaries in the back room start working with reconciling the true costs of Long Term Care.

Q.  Why not rely on private Long-Term Care Insurance?

A.  For a lot of people, private insurance does provide sufficient advantages. If you are healthy enough to qualify, are eligible for multiple discounts and want higher benefits than Class will provide— call your specialist, look at several plans, compare their prices and packages.  The pricing will be significantly lower for private plans for those participants who are not ‘adversely selected.” The policies I bought years ago when I was in my forties – hmm, what? Did you think I’d spend my days specializing in Long Term Care Planning/ Risk Management and not have one?  Combined,will pay up to $180 a day for an Unlimited period of time- much more than Class benefits. With my experience in family care-giving …it’s just fine and provides my family and me with peace of mind and it fits nicely into my budget.

Moreover, private insurance has no vesting period (though the policies do set elimination periods, typically 30 to 90 days, before the benefits will kick in- normally a period covered by health or Medicare coverage). Class participants can’t collect for five employed years.

Q.  What’s the Bottom line?

A. Long-term care insurance, however purchased, either through Class or privately, quite often doesn’t come cheap. Either you buy it earlier in life and pay less per year (as low as $20 per month) — or you buy it later in life and pay much higher premiums. (for a 55 year old, the premiums are now an average of $100 per month.)   It’s always, always less expensive the younger you are when you buy it…. But it’s far more expensive not to have it. Two-thirds of older Americans will need long-term care, as the best projections indicate. Having said that, the value of the mass education that will arise from the Act’s introduction will result in greater awareness of the real issues across the country.

I read an interesting blog commentary on the Class Act recently that stated in so many words, “If too many people close their eyes and shrug their shoulders, trusting that their kids or Medicare or God or someone else will provide, the whole system will run into trouble. And so will they and their families.”  Long Term Care Planning is just another piece of the puzzle and worth a thoughtful look.