Benefits Business

Government-run LTC program hits in 2011

Private plans could face stiff competition even though
benefits are expected to be small

By Len Strazewski

Stop worrying about the big issues of health care reform. The Patient Protection and Affordable Care Act and the reconciliation bill that patched up some problems will take years to resolve, and the biggest issue for agents and brokers will be the establishment of state-operated exchange marketplaces to offer health insurance coverage.

How will they operate? How will agents participate? How will agents be compensated? No one knows right now and the provisions won’t even be effective until 2014. So there’s no point in worrying yet—at least until states introduce their approaches.

There’s also very little to tell your commercial clients, except that they can expect their insured plans to eliminate pre-existing conditions restrictions and annual limits almost immediately, and self-insured plans need to follow suit. Employers may also anticipate penalties if they do not provide health benefits to employees and the employees need to seek federal assistance. Details still to come.

In the meantime, here’s a provision in health care reform that hasn’t received the attention of the general provisions and takes effect much sooner. It may demand some immediate fretting for agents and brokers that sell long term care (LTC) insurance as a voluntary benefit program. A new federal plan designed to supplement private resources for long term care may turn into the toughest competition for private plans.

Buried in the health care reform package is a provision that establishes a voluntary government-operated LTC insurance program that goes into effect in 2011, though details are not expected until 2012. The Community Living Assistance Services and Supports Act (CLASS) was rolled into the comprehensive reform package to allow individuals to pay a monthly premium through payroll deduction for a relatively small LTC benefit for as yet undefined covered services and facilities.

Those who are self-employed and unemployed will be eligible and make direct payments through another mechanism which is as yet undefined.

However, the CLASS benefits would not be comparable to private LTC insurance plans or Medicare benefits. They are something else entirely and are designed to reduce deficit spending, not be a transfer payments program like Social Security, Medicare or Medicaid.

According to an analysis conducted last year by the Kaiser Family Foundation in Menlo Park, California, individual premiums will be placed in “Life Independence Accounts” on behalf of each beneficiary, to be managed by the U.S. Department of Health and Human Services (HHS). Benefits would be paid out of the trust funds plus interest generated over time.

The provisions call for HHS to set premiums based on maintaining a 75-year solvency for the program; estimates range from $180 to $240 per month. Enrollees would be eligible for benefits only after they have paid into the program for at least five years.

What does the program buy? Not yet clear. Like private LTC insurance, the plan would provide benefits to individuals who are unable to perform at least two “Activities of Daily Living” (eating, bathing, dressing, etc.) or who have a cognitive disease that requires supervision or assistance.

Eligibility will be determined by state determination centers to be established, and benefits would be determined based on a scale of functional impairment yet to be determined, but are expected to be no less than $50 per day. The benefit would be entered into a debit account that could be rolled over from month to month but not year to year.

The minimum benefit is relatively tiny compared to the cost of nursing home care which ranges from $3,600 to $7,000 per month around the country. Will the maximum benefit seriously defray those costs? Cost estimates developed by the Congressional Budget Office only considered a maximum benefit of $75, which is still very low to offset set the highest levels of long term care.

While any government support designed to offset long term care costs is probably a positive development, the new program could be a problem for agents and brokers who are trying to market private LTC insurance that provides richer and deeper benefits and is available sooner than the CLASS program.

Will individuals put off an LTC insurance decision while waiting for the government program to start, not realizing they will not be able to receive benefits for a minimum of five years? Will they realize that CLASS is not designed to cover all expenses but, like Social Security is to retirement, provides only a floor of support?

Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI) in Washington, D.C., supports the CLASS program but notes that it should not replace private insurance. CLASS benefits are likely to be narrower than private LTC insurance and pay less for lower levels of care, such as community-based assistance and assisted-living.

“In the short term there will be a whole lot of confusion among consumers. And, confusion will give people a reason (albeit not a good one) to put off what is a very important decision. It’s especially hard to talk about a CLASS plan when no prices (costs) have been established and no definitions for benefit qualification have been established,” he said in a statement about the legislation.

Slome recommends that agents and brokers continue to market private LTC insurance; but, in the meantime, agents and brokers who continue to market the richer private LTC insurance plans should take another look at what purchasers have been buying lately. Consumers have been choosing lower levels of benefits and longer elimination periods. This could be a tough sell in the face of the CLASS program.

AALTCI analyzed 155,000 policies purchased in 2009. According to the organization, buyers skewed older than previous years, bought low-level limits and the highest available deductibles.

Nearly three-fourths of buyers were 55 years old or older when they applied for coverage, compared to only 69% in the last survey in 2008. An increasing percentage of buyers selected lower benefit levels and longer elimination periods

About 43% of buyers selected low initial daily benefits of $149 per day, compared to 37.5% percent in 2008. And more than 92% chose the longer elimination period of 90 days before benefits can be paid.

“Clearly the economy is having an impact on when individuals start their long term care planning and what benefit levels and policy options they select,” Slome says.

While most private LTC insurance plans can pay benefits for five years or longer, most buyers choose the cheaper three-year benefit period, Slome notes. However, most buyers now add inflation protection to prevent the erosion of plan value over time.

Premiums paid range from $1,000 to $3,200 but the study indicates that the average premium paid by buyers in the age 45 to 54—the biggest buyer segment—was $1,900, probably less than the anticipated Class premium.

Knowing that CLASS is coming, will buyers still invest in private LTC insurance? That could be a tough sell.

The author
Len Strazewski has been covering employee benefits issues for more than 30 years and is employee benefits columnist at Human Resource Executive magazine. He has an M.S. in Industrial Relations from Loyola University in Chicago.