The CLASS Act (Community Living Assistance Services and Supports) was signed into law as part of health care reform by President Obama on March 23, 2010. It was fatally flawed from the beginning. The idea was to provide a cash benefit ($50-$75 per day) to people who needed long term care services. Anyone, regardless of degree of disability could participate provided they were employed at the time of enrollment (and for at least 3 years during the first 60 months) . Sound good so far? Workers would have to pay into the program for at least five years before they could receive any benefits. Now for what doomed the CLASS Act: The law required that no taxpayer money could be used to fund benefits…the program was required to be “actuarially sound” (demonstrated to be self-sustaining) for at least 75 years. In other words, the premiums were required to be high enough to fully fund the program.
To use an overworked cliché, Congress created a perfect storm. On the one hand, the program had to accept all risks. This was analogous to an insurance company being forced to issue a policy on a home that was already on fire. With many already disabled people in the program, the cost of claims would be driven through the roof. On the other hand, premiums had to be set high enough to cover all of the costs. This would inevitably have led to premiums being so high that only unhealthy people would enroll. As healthy people could easily buy commercial long term care insurance with better benefits and at lower cost, a higher and higher proportion of unhealthy people would migrate to the plan. Premiums would quickly have to become so expensive that even disabled people would leave the plan.
At a long term care insurance conference in April of this year, I heard Robert Yee (then Chief Actuary for the CLASS Office) try to defend the program. Bob could not do so and admitted as much. In his words “I have been given an impossible task.”
So how did it end? On October 14, 2011, the Obama Administration terminated further work on CLASS. The CLASS Act implementation team has all been either fired or reassigned. If you believe the role of government is to provide for everyone regardless of cost, then the CLASS Act would have been a good thing. If you believe that ever-increasing deficits are a greater danger to our country, then you would not have supported the program if you had known the details.
Here is the take-away as I see it: Medicare (medical insurance for people age 65 and older) is in trouble. Medicaid (primary provider of nursing home care for the poor) as we know it, is not sustainable. Medicaid eligibility requirements will inevitably be tightened. Our Nation cannot afford the cost of covering everyone’s long term care risk. Each of us will be left with only three choices: 1) Apply for quality long term care insurance from good companies while you are still insurable. 2) Plan on spending your own accumulated assets (including equity in your home by way of a reverse mortgage). 3) Don’t do any planning and instead rely on increasingly overtaxed public welfare programs for your care.
This is my newsletter so I get to say what I believe. As always, I welcome your reactions, pro or con. However I do ask that you respond in a mutually respectful manner. Let’s leave extreme views of the Left and the Right out of our discussion.
Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence. Long term insurance policies vary from company to company & within the same company. Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice. Consult your tax advisor or attorney for these matters.
© Raymond Smith, The Long Term Care Specialist, 2011
Planning for Long Term Care 