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 this month told Congress that the Community Living Assistance Services and Supports Act isn't 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 a day wouldn't cover daily LTC costs, Skeptics also argued that the government's underwriting and pricing were too aggressive.
Many opponents thought that the pool on which the CLASS Act was based eventually would become full of sick individuals who were unable to get private LTC coverage.
WIN FOR INSURERS
Although a defeat for Mr. Obama, the program's demise is seen as a win for insurers that sell LTC coverage, including
CNO Financial Group, Genworth Financial Inc., John Hancock Life Insurance Co. and Unum Group. Those insurers 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 have been the opportunity to sell supplemental coverage to clients who needed to make up for the CLASS Act's shortcomings, according to FBR.
The loss of the program underscores the need for clients to get serious about planning for long-term care, financial advisers said.
Indeed, Ms. Sebelius wrote in her letter that by 2020, an estimated 15 million Americans will need some kind of long-term care; fewer than 3% have a LTC 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, Mr. Armstrong said.
“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.
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 Life Insurance Co.
“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 said.
“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.”
Email Darla Mercado at [email protected]
