Obama health plan a threat to sellers of long-term medical insurance

While a hotly debated long-term-care provision is included in the sweeping health care reform legislation that President Barack Obama signed this afternoon, it remains unclear how to implement the program — and how successful it will be in encouraging individuals to purchase LTC coverage, according to industry observers.
The provision, called the Community Living Assistance Services and Supports Act, also survived. The CLASS Act, which was spearheaded by the late Sen. Edward Kennedy, D-Mass., is a program in which workers would pay a premium over a five-year vesting period to later receive about $50 per day in benefits for medical equipment and home renovations — provided they were unable to perform activities of daily living.
“On the one hand, the fact the CLASS Act has passed is a huge step forward,” said Howard Gleckman, a resident fellow at the Urban Institute. “It takes what has been a welfare-based Medicaid program — the primary way most people pay for their long-term care — and changes it into an insurance program.”
“But the problem is that we’re doing this as a voluntary system, and there are issues with voluntary long-term-care insurance,” he explained. “Some will figure out that an amount of money is being deducted for this insurance, and they’ll wonder if that makes sense or are they having money deducted for something they don’t understand?”
Mr. Gleckman said another problem with the voluntary program is that those who are most likely to need it will enroll, driving up premiums, while younger and healthier individuals drop out of the program. “The challenge is to create a package of benefits that people want at a premium they’re willing to pay,” he said. “The private industry has failed to do that for 20 years, and the question is: Can the federal government design a more attractive policy?”
But the establishment of the program doesn’t necessarily mean that the government has to compete directly with the insurance industry. Carriers have a chance to wrap their LTC product around government policy much in the way they have stepped up to create Medigap coverage, Mr. Gleckman added.
Whether the passage of the CLASS Act could actually result in more people purchasing long-term-care coverage remains to be seen, noted Dallas L. Salisbury, president and chief executive of the Employee Benefit Research Institute.
“Overall … purchases [of LTC insurance] have been modest, and haven’t grown rapidly,” he said. “You’re dealing with a small population that tends to be higher-income people who want to protect their net worth.”
But Mr. Salisbury added that there would be a possible interplay between the CLASS Act and Medicaid that could affect which individuals would have to spend down to receive Medicaid coverage. As a result, the act could offset Medicaid expenditures by reducing spend-down behavior, but this is an issue that needs further examination, Mr. Salisbury said.
“If the CLASS Act pays the bills, then I don’t have to spend down to receive Medicaid,” he said. “There’s an income stream, and people who get it will wait longer before they apply to Medicaid to pay for their nursing home bills.”
Meanwhile, members of the insurance industry, which has pushed hard against the act, continue to hope that its passage would encourage advisers to talk to clients about the program’s details and to show clients that they couldn’t necessarily rely completely on the LTC program.
“It will be up to advisers to do their best to educate individuals in their mid-50s about the CLASS Act and show them why it’s a mistake to wait,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance. “For now, there’s a battle of the messages.”