Understanding the Government's New Long-Term Care Program
By Ric Edelman
If you have long-term care insurance or are thinking about buying it, you’ve probably been listening for news about the government’s new Community Living Assistance Services and Supports program, or CLASS. Included in the new health care law, CLASS is a voluntary, government-run, long-term care insurance program for people who are currently employed.
The Department of Health and Human Services will operate the program, but few details have been released. Here’s what we know so far.
How the program works. Active workers who want to participate will pay a monthly premium, which will be deducted from their paychecks. Unlike private-sector long-term care insurance, CLASS will have no underwriting requirements. Thus, every active worker will be eligible, regardless of health. Premiums will be based solely on the enrollee’s age when entering the program. The Congressional Budget Office estimates the average cost will be about $1,500 per year; older workers will pay more, younger workers less. After five years of paying premiums, workers will be eligible for benefits, provided they have worked at least three of those five years.
The benefit. The benefit is expected to be at least $50 a day, average around $75, and will vary depending on the level of disability. There is no lifetime or aggregate limit. However, the program is designed to remain solvent for 75 years and the government can adjust premiums for both current and future enrollees and reduce benefits to the daily minimum of $50.
To be eligible for this benefit, workers must require substantial assistance from another individual to perform at least two or three (the number has yet to be determined) “activities of daily living,” which include eating, toileting, transferring, bathing, dressing and maintaining continence, or have substantial cognitive impairment. CLASS is intended to help seniors to stay in their homes, so benefits can be used to pay for home health care aides, adult day care or installation of safety features, such as grab bars and handrails in bathrooms. The money can also be used for assisted living or a nursing home.
The timeline. CLASS might begin collecting premiums as soon as 2011, but there could be delays. The soonest that benefits will be paid is 2016.
Comparing CLASS to private sector LTC coverage. We’re pleased that the government is attempting to offer long-term care insurance, but CLASS doesn’t eliminate the need for you to buy a policy from private health insurers. First, CLASS’s daily benefit of $50 or $75 is woefully insufficient, considering that the average daily cost of a nursing home is $206, according to the 2010 Genworth Cost of Care survey, and that licensed in-home health aides today cost an average of $19/hour. Making these figures even worse is the fact that they are projected to be $268 and $21, respectively, when CLASS benefits become available in 2016. And unlike long-term care insurance you purchase, the government’s program is not a contract; benefits and costs can change.
Make that will change. The premiums and benefits offered will depend on how many people enroll and how healthy they are. Since those in poor health are the most likely to join the program (because they know they need it and can’t get coverage from private insurers), CLASS might experience more claims than Congress anticipated. If so, you can expect costs to rise or benefits to be reduced.
So should you participate in the CLASS program, buy LTC from the insurance industry, or do a combination of the two? We can’t answer that question until we get more details from HHS; you can be certain we’ll be providing you with more information as we learn more.
In the meantime, do not let the notion of the CLASS program cause you to delay getting your own LTC insurance if your planner has recommended it for you. It’s unlikely that CLASS will meet all your LTC insurance needs, but even if it does, you should buy LTC insurance today to get the protection you need; you can always cancel the policy later, after you sign up for CLASS. Stay tuned for more on this important subject in months to come.