Current Status Updates
10/20/11 - CLASS Act Program Canceled; Read More»
10/17/11 - Obama opposes repeal of CLASS ACT; Obama announces he is still committed to making the CLASS Act sustainable. - Read More»
10/14/11 - Administration drops part of healthcare law; The Obama administration has decided not to move forward with the implementation of the CLASS Act. They do not see it as viable and sustainable. - Read More»
Long Term Care CLASS Act - What is it?
The Community Living Assistance Services and Support Act (CLASS Act) establishes the first national, government run Long Term Care insurance program. It will be a consumer financed insurance pool overseen by a government trust.
A primary goal of CLASS is to reduce the role of Medicaid, which today pays for more than 40 percent of all personal care for seniors and others with disabilities. Medicaid currently spends one-third of its entire budget, or more than $100 billion a year, on Long Term Care and that number is only set to increase as the population ages.
CLASS is the latest in a series of measures the government has taken in recent years to try to encourage people to plan for Long Term Care and, acquire Long Term Care insurance. In previous years, elements of bills like the Deficit Reduction Act took steps to expand the private Long Term Care insurance through tax incentives ,government-funded marketing campaigns, and by tying LTC coverage more closely to Medicaid through state partnership programs.
CLASS takes these measures a step further by providing a mechanism for the working adults to obtain LTC coverage with limited benefits irregardless of health. Traditional private Long Term Care insurance requires that applicants meet certain good-health requirements. CLASS insurance will be "guarantee issue" and will not have such health qualification requirements.
When Does the Long Term Care CLASS Act Program Take Effect?
The effective date of the program is Jan 1, 2011 but it probably will not be operational until 2013 or later. Now that the bill has been signed into law by President Obama, it will go to the Department of Health and Human Services, where the terms of the program will be worked through. Although some publications have indicated an effective date as early as 2011, the Secretary has until October 2012 to designate a benefit plan. It will be another five years from that point before anyone is eligible for benefits.
How the Long Term Care CLASS Act Health Care Reform Works
The CLASS provisions create a government administrative structure under which participants will pay a monthly premium, and will be eligible for modest benefits for their long-term care needs after five years of paying premiums. This is significantly different than any other government program because the law requires benefits will be paid by premiums collected from voluntary participants and not by the taxpayers. The government has reserved the right to raise premiums in the future if their initial assumptions are not being met. The passage of this bill is a recognition that the government does not currently provide for significant Long Term Care benefits and is not likely to take on that financial responsibility in the future. The Act as passed does not define benefit amounts, premium levels, or requirements for receiving benefits. All these decisions are left to the Secretary of Health and Human Services to decide over the next 2½ years.
Payroll deduction will be the largest mechanism to pay into the pool. Employers would collect the premiums from your paycheck and pay them into the trust. The Employer can decide to pay a portion of the premium for their employees but this is voluntary. They can also decide not to participate in the payroll deduction feature. The self employed, or those whose employers opt not to administer the program will have an option to pay directly. The mechanism for this has not yet been determined.
CLASS Compared to Private LTCi
We recommend that all current LTCI policyholders retain their private LTC insurance policies due to the highly limited nature of the Long Term Care benefits that will be offered under CLASS, as well as what could potentially be very high premiums for CLASS due to adverse selection.
Cost of CLASS Act Long Term Care Insurance
The premiums have not yet been determined. The Secretary will determine that as part of the program construction by Oct 1 2012. Under the law, the premiums have to be set so that the program is actuarial sound/solvent for 75 years. Given the fact that there are no health qualifications, those who enroll are more likely to need care and will be more expensive to cover than those who buy private insurance. To cover its costs, the program would therefore have to charge more than private insurers.
Pros of CLASS
- Guarantee Issue means that no one can be denied coverage based on current health condition.
- Low premiums ($5 per month) for students under 22 and people with income below the poverty line
- Requirement that the premiums be actuarially sound puts it on a fair competitive basis with private insurance
Cons of CLASS
- Current estimates of the cost of the benefits suggested are $180 to $240 per month. This cost is much higher than currently charged for individual insurance for qualified buyers.
- Need to wait for 5 years before you are eligible for benefits
- Need to wait at least 2 years before benefits are determined
- Have to be working adult with more than 5 years planned before retirement
Who Should Use CLASS
- People that have been declined for private insurance
- People below the poverty line
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