Clients may not be knocking down the doors to participate in the long-term-care-insurance program created last week by the passage of health care reform, but advisers are optimistic the program's existence will spur more discussion around the benefits of LTC planning.
The government-run program, which was created by a provision in the bill known as the Community Living Assistance Services and Supports Act of 2009, will pay participants $50 a day in benefits — provided they are unable to perform activities of daily living — in exchange for voluntary premium payments financed through payroll withholdings over a five-year period.
Workers may opt out of the program.
While few advisers are likely to recommend that clients rely on the program to meet all of their long-term-care expenses, many are hoping the program will encourage clients to think more seriously about the benefits of long-term-care planning.
“There's no question that this is limited coverage, but I think it's a tremendous boon to all,” said Philip Davis, president and co-founder of Corporate Compensation Plans Inc., which designs insurance plans for large employers. “It will get planners into the education business and that's what's really lacking.”
Indeed, “we're not trying to incentivize people to take the $50-per-day benefit — that wouldn't accomplish anything,” said Henry Montag, a registered representative with MML Investors Services Inc. and a principal at Henry Montag Associates. “Most people I talk to who are able to buy a $200-per-day benefit privately would rather get it all from one source than cover part of it with the $50 benefit.”
Mr. Montag declined to disclose his firm's assets under management.
The program represents a “a huge step forward,” said Howard Gleckman, a resident fellow at the Urban Institute.
“The problem is that we're doing this as a voluntary system, and there are issues with voluntary long-term-care insurance,” he added. “Some [workers] 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?”
Another problem with the program is that those who are most likely to need it will enroll, driving premiums up, while younger, and presumably healthy, workers will likely opt out, Mr. Gleckman said.
While the program is intended to provide more Americans with some semblance of LTC coverage, it remains to be seen whether it will prompt workers to boost that coverage by buying additional LTC insurance from carriers.
Last year, about 8 million individuals had LTC coverage in force, up from 7.3 million in 2008, according to the American Association for Long-Term Care Insurance.
“Purchases [of LTC insurance] have been modest, and haven't grown rapidly,” said Dallas L. Salisbury, president and chief executive of the Employee Benefit Research Institute. “You're dealing with a small population that tends to be higher-income people who want to protect their net worth.”
The insurance industry, which fought against the inclusion of the CLASS Act in the reform legislation, hopes the program will encourage advisers to talk to clients about the program's details and to show them that they shouldn't rely on program to cover all of their long-term-care expenses.
“It will be up to advisers to do their best to educate individuals in their mid-50s about the CLASS Act and to show them why it's a mistake to wait,” said Jesse Slome, co-founder and executive director of the AALTCI.
E-mail Darla Mercado at [email protected].
