Debate heats up on public long-term care insurance

Posted on 28 July 2009

By Mark Miller

Permanent URL of this article: http://retirementrevised.com/money/debate-heats-up-on-public-long-term-care-insurance

While most debate on health care reform focuses on health insurance, debate is heating up on a bill proposing creation of a new government-sponsored long-term care insurance plan. The plan is sponsored by Senator Edward M. Kennedy (D-Mass) and goes by the name C.L.A.S.S. Act, which stands for Community Living Assistance Services and Support. Here’s the basic idea, as described by The New York Times:

It creates a national insurance trust that people can voluntarily participate in. It’s a publicly sponsored insurance plan, to make it as low-cost as possible. You pay a monthly premium. If you become disabled and need assistance with activities of daily living [A.D.L.’s] at any age, you can qualify for a daily cash benefit on the order of about $50 to $75 a day, depending on your level of disability.

So far, so good–the long-term care insurance market has been hampered by high expense and a history of aggressive sales techniques. A good summation of the argument in favor of the bill comes from Larry Minnix, CEO of the American Association of Homes and Services for the Aging:

Chances are, someone close to each and every one of us will require long-term services and support at some point. In fact, among those turning 65 today, 69 percent will require some form of prolonged care.

Unfortunately, it’s becoming more difficult to pay for such care.

Surveys have found that the costs of food, transportation and medicine total more than $5,500 annually for the average long-term caregiver responsible for a loved one. To cover these costs, 16 percent of seniors will need a nest egg of more than $100,000; 5 percent will need more than $250,000.

Many Americans aren’t prepared for these extra expenses. People wrongly believe Medicare will pay for these services. It will not. They haven’t saved enough. And they have no idea how much it costs to provide and receive care.

But good questions have been raised about premium pricing and overall viability of a public plan. Howard Gleckman–a senior research associate at the Urban Institute and author of a book on health care and aging called Caring For Our Parents–points to uncertainties related to mandates and premium pricing:

Kennedy’s bill, which is likely to be debated by the committee this week, anticipates an average monthly premium of $65. The lifetime cash benefit would be $50 a day (the actual benefit would vary depending on a beneficiary’s level of need). Such a low monthly price would be a terrific deal and likely attract lots of buyers.

However, in recognition of Kennedy’s own uncertainty, the proposal gives the Secretary of Health and Human Services broad discretion to set actual premium levels. And there is some evidence that monthly payments would be quite a bit higher than Kennedy hopes.

In late June, the Congressional Budget Office projected premiums would average between $100 and $110 per month—still a good deal, but these higher prices would probably drive some buyers out of the market. CBO’s estimate tracks earlier projections by a private actuarial firm, The Moran Co., that studied a similar long-term care insurance plan designed by the American Association of Homes and Services for the Aging, a trade group of nonprofit nursing homes and home health agencies.

There are lots of uncertainties to these estimates, but the biggest centers around whether everyone would be required to buy coverage. If there were such a mandate, individual premiums could be kept relatively low. If there weren’t, costs for those who do buy would be higher.

Some experts, including the American Academy of Actuaries, worry that the public plan faces a high risk of insolvency over time as currently proposed. Download the report here [pdf file].

Tags | health insurance, long-term care

6 Comments For This Post

Jesse Slome Says:
July 28th, 2009 at 6:50 pm
Mark, as with all proposals there will be winners and losers. Those nearing retirement are poised to be big winners but they (we) will leave the next generation(s) with an entitlement program that will dwarf all existing programs. Home care providers will also be both short-term and long-term winners so it’s no wonder they ardently support the plan.

I urge people to read the American Academy of Actuaries report and I will gladly send a PDF of the 13-page letter to anyone who e-mails me.

Simply, the CLASS bill starts as a voluntary plan. But at $100 a month, that’s $2,400 a year for a couple (actually more than a traditional long-term care insurance plan). So, who’ll buy – those most likely to place a claim (if that).

The result; when claims start to be paid – they will be well beyond expectations. And, what makes anyone think people who aren’t flocking to buy LTC insurance in the private market will suddenly do so just because the government offers it.

So, what we’ll see is a voluntary plan become a mandatory tax because no entitlement program once started is ever terminated.

If you are 55 or 60, by the time the new tax hits, you’ll be close to retirement (at which point no more tax obligation). And, those poor 20 and 30 year olds … well they’ll just have to foot the new tax bill. I guess they should have read the small print.

While I agree long-term care is an enormously important issue the CLASS Act just isn’t the ideal solution for the nation’s long-term future.

If you’ll allow me to offer the Actuaries report, I will gladly do so.

Jesse Slome
Executive Director
American Association for Long-Term Care Insurance
http://www.aaltci.org
E-mail: jslome @ aaltci.org
George Braddock, II Says:
July 29th, 2009 at 8:17 am
Mark, why do you save the most damaging endightment of the CLASS Act for the very last sentence? When the American Academy of Actuaries reports to Congress that the program is unsustainable, as it did last week, that should bring serious consideration of the Act to a screeching halt. They calculated that it would become “insolvent within 11 years” and “unlikely to cover more than a very small proportion of the intended population”.
Mark Miller Says:
July 29th, 2009 at 9:16 am
George, I chose not to play this fact higher up because this is still a bill under debate and the features that ultimately emerge are still up for grabs. It’s not yet clear that the program would, in fact, be unsustainable if enacted.

Mark
George Braddock, II Says:
July 30th, 2009 at 7:37 am
Not clear? Mark, you should read the 13 page letter the AAA sent to Senator Kennedy’s HELP Committee July 22nd. They calculated it would cost TWO TO FOUR TIMES the $65 pricetag being proferred for a tiny $50 daily benefit. So, the CLASS Act is a lie. It is not a cheap alternative to conventional, privaTe long-term care insurance. The truth is: it will cost even more! Good intentions not withstanding, this Act is both a sham and a shame.
Mark Miller Says:
July 30th, 2009 at 8:09 am
Repeating: the final shape of the bill isn’t settled.
Scott A Olson Says:
November 27th, 2010 at 1:59 pm
There are three big disadvantages to the CLASS Act. Here’s a link:

http://bit.ly/CLASS-Act-shortcomings

1 Trackbacks For This Post

Government-sponsored long-term care plan advances in health reform bills | RetirementRevised Says:
November 11th, 2009 at 5:15 pm
[...] the Community Living Services and Support Act (CLASS), the bill would create a consumer-funded national long-term care and disability insurance trust. [...]

Jesse Slome Says:
July 28th, 2009 at 6:50 pm

Mark, as with all proposals there will be winners and losers. Those nearing retirement are poised to be big winners but they (we) will leave the next generation(s) with an entitlement program that will dwarf all existing programs. Home care providers will also be both short-term and long-term winners so it’s no wonder they ardently support the plan.

I urge people to read the American Academy of Actuaries report and I will gladly send a PDF of the 13-page letter to anyone who e-mails me.

Simply, the CLASS bill starts as a voluntary plan. But at $100 a month, that’s $2,400 a year for a couple (actually more than a traditional long-term care insurance plan). So, who’ll buy – those most likely to place a claim (if that).

The result; when claims start to be paid – they will be well beyond expectations. And, what makes anyone think people who aren’t flocking to buy LTC insurance in the private market will suddenly do so just because the government offers it.

So, what we’ll see is a voluntary plan become a mandatory tax because no entitlement program once started is ever terminated.

If you are 55 or 60, by the time the new tax hits, you’ll be close to retirement (at which point no more tax obligation). And, those poor 20 and 30 year olds … well they’ll just have to foot the new tax bill. I guess they should have read the small print.

While I agree long-term care is an enormously important issue the CLASS Act just isn’t the ideal solution for the nation’s long-term future.

If you’ll allow me to offer the Actuaries report, I will gladly do so.

Jesse Slome
Executive Director
American Association for Long-Term Care Insurance
http://www.aaltci.org
E-mail: jslome @ aaltci.org

George Braddock, II Says:
July 29th, 2009 at 8:17 am

Mark, why do you save the most damaging endightment of the CLASS Act for the very last sentence? When the American Academy of Actuaries reports to Congress that the program is unsustainable, as it did last week, that should bring serious consideration of the Act to a screeching halt. They calculated that it would become “insolvent within 11 years” and “unlikely to cover more than a very small proportion of the intended population”.

Mark Miller Says:
July 29th, 2009 at 9:16 am

George, I chose not to play this fact higher up because this is still a bill under debate and the features that ultimately emerge are still up for grabs. It’s not yet clear that the program would, in fact, be unsustainable if enacted.

Mark

George Braddock, II Says:
July 30th, 2009 at 7:37 am

Not clear? Mark, you should read the 13 page letter the AAA sent to Senator Kennedy’s HELP Committee July 22nd. They calculated it would cost TWO TO FOUR TIMES the $65 pricetag being proferred for a tiny $50 daily benefit. So, the CLASS Act is a lie. It is not a cheap alternative to conventional, privaTe long-term care insurance. The truth is: it will cost even more! Good intentions not withstanding, this Act is both a sham and a shame.

Mark Miller Says:
July 30th, 2009 at 8:09 am

Repeating: the final shape of the bill isn’t settled.

Scott A Olson Says:
November 27th, 2010 at 1:59 pm

There are three big disadvantages to the CLASS Act. Here’s a link:

http://bit.ly/CLASS-Act-shortcomings

Government-sponsored long-term care plan advances in health reform bills | RetirementRevised Says:
November 11th, 2009 at 5:15 pm

[...] the Community Living Services and Support Act (CLASS), the bill would create a consumer-funded national long-term care and disability insurance trust. [...]

RetirementRevised by Mark Miller

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