LTCI too pricey even for Uncle Sam as CLASS Act yanked

Executives at life insurance companies can breathe a sigh of relief now that the proposed federal long-term-care insurance program — the CLASS Act — has been killed.
The Department of Health and Human Services on Friday told Congress that the Community Living Assistance Services and Supports Act is not viable. The plan, championed by the late Sen. Edward Kennedy (D.-Mass.), was tacked on to President Barack Obama’s contentious health-care-reform bill.
The program, which would have provided an average payout of $50 a day toward long-term care, was voluntary, and taxpayers had to contribute to the program for five years before being eligible to participate. The program was required to be solvent for at least 75 years, but had come up short.
“Despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time,” Health Secretary Kathleen Sebelius wrote in a letter to Congress.
Many critics had blasted the program, arguing that $50 per day would not cover daily long-term-care costs, Skeptics also argued that the government’s underwriting and pricing were too aggressive. Many opponents believed the pool on which the CLASS Act was based eventually would become full of sick individuals who were unable to get private long-term-care coverage.
While a defeat for the president, the program’s demise is seen as a win for insurers that sell long-term-care coverage, including CNO Financial Group, Unum Group, Genworth Financial Inc. and John Hancock Life Insurance Co. Those carriers would have had to compete against the government’s program, according to FBR Capital Markets.
If the program had been approved, the only real benefit to private insurers would’ve been the opportunity to sell supplemental coverage to clients who need to make up for the CLASS Act’s shortcomings, according to FBR.
Advisers noted that the loss of the program underscores the need for clients o get serious about planning for long-term care. Indeed, Ms. Sebelius noted in her letter, by 2020, an estimated 15 million Americans will need some kind of long-term care; fewer than three percent currently have a long-term-care policy.
“We are right where we have been operating,” said Stuart Armstrong, a broker at Centinel Financial Group LLC. “We will be guiding clients the same as today but now without the possibility of the CLASS long-term-care provisions for those clients who are uninsurable.”
Those individuals are back at the drawing board, he added.
“If it used actual funding and weren’t done with smoke and mirrors, it could’ve helped a great many people today in a small way,” said Henry Montag, owner of Henry Montag Associates.

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Advisers ought to take Ms. Sebelius to heart and get motivated to help their clients plan for long-term care, said Steve Sperka, vice president of long-term care at Northwestern Mutual.
“If I’m an adviser and I share this news, it’s one more piece of evidence from the federal government, telling people they should think about developing an individual plan for their LTCI needs,” he added. Clients have a variety of products to consider, including a state partnership plan or a hybrid life and long-term-care policy, he added.
“There’s this perception that LTCI premiums are such that it’s hard for certain income markets to get into it, but I see flexible designs,” Mr. Sperka said. “If you sit with someone and get a sense of their budget and needs, you can cater the products.”