LTC Bullet: "CLASS Dismissed" for Broker World

Thursday, February 11, 2010


LTC Comment: Steve Moses's latest--and hopefully last--article on the CLASS Act is in the current issue of Broker World. Read it after the ***news.***

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LTC Comment: This month's Broker World has my last word on the now-defunct CLASS Act. Read it below or here. Reprinted from BROKER WORLD February 2010, Used with permission from Insurance Publications. Subscriptions, $6/yr., 1-800-762-3387.


Stephen Moses, President
Center for Long-Term Care Reform

Has Congress got a deal for you?! It’s a new government LTC insurance plan included in both the House and Senate health reform bills. Here’s what CLASS (Community Living Assistance Services and Supports Act) proposes.

If you (1) don’t opt out of the one-size-fits-all program (you’re in automatically otherwise—no choices, take it or leave it) and (2) if you pay your $100 (or more) extra monthly payroll tax for five years (to "vest") and (3) you remain employed (at least marginally) and (4) you need help with two, three or four out of six activities of daily living, such as dressing, bathing, eating, toileting (depending on what the U.S. Department of Health and Human Services [USDHHS] decides CLASS can afford), then (5) you may receive a benefit of $50 or more per day (again depending on what the USDHHS thinks the system can bear) for as long as you need it (no limits on the benefit which pays forever once you quality).

Now, you’re a savvy consumer. So you ask some questions just as a client might interrogate you if you were trying to sell a private insurance product.

Question 1: "I’m healthy," you say, "I eat well, I work out. I have no more than an average risk of needing expensive long term care someday. How do I know I’m not paying higher premiums so others can pay less? How do you price my risk? How do you underwrite?"

Answer: CLASS has no underwriting—anyone, no matter how frail or infirm, can participate. Everyone pays the same premium, but only people who need services will receive benefits. Insurance professionals call this "adverse selection."

Question 2: "I usually buy (life, health, auto, fire) insurance to replace the small risk of a sudden catastrophic loss with the certainty of an affordable premium. What will this coverage do for me if I have a stroke or get hit by a truck tomorrow and need full-time skilled nursing care?"

Answer: CLASS pays nothing until you’ve contributed premiums for at least five years and then about a quarter of the average cost of a private nursing home bed ($219 per day) if, and only if, the USDHHS decides it can afford even that.

Question 3: "I’ve heard there is nothing but IOUs in the Social Security and Medicare trust funds and their unfunded liabilities top $106 trillion. How would the CLASS Act’s trust fund protect my investment?"

Answer: Money is fungible—as long as the federal budget runs a deficit, your premiums will go to make fiscal ends meet. In fact, half the deficit reduction alleged for "health reform" comes from counting the CLASS Act’s claims reserves as available surplus revenue! The CLASS Act’s promise to pay you benefits someday is tantamount to: "Trust me, I’m from the government, I’m here to help you."

Question 5: "This CLASS plan sounds awfully top-heavy. Is it actuarially sound?"

Answer: CLASS advocates—LTC providers who need the revenue and people who are uninsurable without it—say CLASS is sound actuarially. The American Academy of Actuaries, the actuary for Medicare and Medicaid, and the Congressional Budget Office say it isn’t. Who ya gonna trust?

Question 6: "What are my options if I opt out of CLASS?"

Answer: Private long term care insurance is available in many forms. It is priced for actuarial solvency; it is underwritten so you pay only for the level of risk you bring into the risk pool; it invests your hard-dollar premiums in solid, protected reserves; it’s regulated to ensure a guaranteed benefit; and it is a contract enforceable in a court of law. CLASS has none of these characteristics.

Question 7: "CLASS sounds like a sucker deal, just another way to transfer wealth from me to others the government thinks need my money more than I do. Right?"

Answer: Bingo! The Medicare and Medicaid actuary estimates that only two percent will use CLASS. The people who participate will be those who know for sure they’ll need LTC someday and sooner rather than later.

The Big Question: If CLASS passes, how will consumers react?

The Big Answer: Since 1965, when Medicaid and Medicare passed, the government has paid (inadequately) for most expensive long term care (in nursing homes). CLASS will lead careless consumers to believe a risk they didn’t think they faced anyway has been further reduced by yet another government program, one that pays for home care (they want), not just for nursing home care (they’d rather avoid).

But smart consumers will see through the CLASS Act’s smoke and mirrors. They’ll realize private long term care insurance is their last best hope to ensure access to quality long term care when they need it and in the best, most appropriate setting.

Stephen A. Moses is president of the Center for Long-Term Care Reform. He can be reached by telephone at 206-283-7036. Email: Website: