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

Obama health plan a threat to sellers of long-term medical insurance
The CLASS Act, which sets up a government-run insurance program, survived the tortuous health-care debate in Congress. But experts can't predict how — or if — the controversial program will work
APR 13, 2010
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.”

Latest News

Social Security trustees see one less year in insolvency countdown, project shortfall to start 2034
Social Security trustees see one less year in insolvency countdown, project shortfall to start 2034

New report shows dimmed outlook for benefits to retirees and disabled Americans, creating further pressure for federal tax hikes or more borrowing.

NY Republican Stefanik presses SEC to probe Harvard bond sale
NY Republican Stefanik presses SEC to probe Harvard bond sale

Open letter to SEC Chair Paul Atkins questions whether the Ivy League university withheld material information prior to its $750 million taxable bond offering.

Ex-LPL leader re-emerges at The Wealth Consulting Group
Ex-LPL leader re-emerges at The Wealth Consulting Group

The Las Vegas-based hybrid RIA overseeing $8.8 billion in assets has named Andy Kalbaugh president to help scale its advisor platform.

Envestnet extends investment offerings with new alts model portfolios
Envestnet extends investment offerings with new alts model portfolios

The wealth tech giant – in collaboration with Fidelity, BlackRock, State Street, and Franklin Templeton – is offering its advisor and wealth firm users more ways to diversify.

Just as wealth industry M&A was picking up, economic uncertainty could kill it again
Just as wealth industry M&A was picking up, economic uncertainty could kill it again

Deal volume increased post-election but now caution has taken over.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave