Supporters of Senator Ted Kennedy’s CLASS Act, which would create a national long-term care insurance program, are bragging that the plan would produce $59 billion for the government over the next 10 years, money they say could help pay for health reform.
As much as I like the ideas behind the CLASS Act, this claim is both misleading and counterproductive. It implies that premiums for this insurance would get tossed into the bottomless pit of the federal budget. In reality, a well-designed program, which the CLASS Act could be, would keep those premium payments totally separate from the rest of the budget. They would, instead, go into a discrete fund to be invested just like private insurance premiums.
The $59 billion in projected revenue comes from the Congressional Budget Office, which is responsible for estimating the costs of all legislation. CBO says the CLASS Act would raise $59 billion because, while premiums would be collected right away, no benefits would be paid out for the first five years. There are good financial reasons for setting this “vesting” period, but it is this unusual schedule that creates this temporary income.
It is easy to understand what the CLASS Act backers are doing. With lawmakers desperate to find money to pay for health reform, they want to make it appear that government long-term care insurance is something of a golden goose. But if a national long-term care insurance plan is going to pass, both consumers and lawmakers need to understand it is designed to be financially sound over the long-term. And if consumers are to believe they are paying a premium, and not a tax, they have to be convinced they are purchasing insurance, not a vague government promise of support for their long term care in 50 or 60 years.
Industry opponents have already jumped on the claim. Jesse Slome of the National Association for Long-Term Care Insurance, a trade group, blasted the CLASS Act as “an underfunded entitlement program.” Supporters seem to want to counter that, no, it is actually an overfunded entirelement program. I don’t think that’s an argument they can win.
Many of the families I talked to in Caring for Our Parents would love to have access to financially sound long-term care insurance. But they don’t want to pay premiums that will help fund health reform.
I agree. The CLASS Act is really an employer program, not a government program in spite of the fact that the government sets it up and gets it going. Also, there is a role for private LTC insurance, but as supplementary coverage. Right now private LTC insurance is the only game in town in terms of insuring against the risk you’ll need long term care. But they’ve had 25 years and only 7-8 million people have bought it; a drop in the proverbial bucket. Time to do something different!
You are on target. The Class Act would do well to emulate the best practices of private insurance which would require it to be actuarially sound, set aside adequate LTC reserves to pay future claims, and have all the consumer protections that commercially insured private LTC insurance now offers – if it is to compete with private employer-based LTC insurance then it should follow the same principles of sound design, equitable benefit provision and pricing for rate stability to which that industry is held.
I get the fact that Jesse Slome makes a living being a rhetoric machine for long-term care insurers. However,as another poster pointed out here, people aren’t exactly running out to buy private long-term care insurance policies. And they won’t be anytime soon. Here are some reasons why:
1. Many people don’t understand them.
2. Many people don’t trust that the benefit will be there when they need it. I was talking to one person the other day who bought one (he’s in his 80s; bought his policy in his 60s). He said his policy was sold to another insurer and he has no clue if his benefits are still in place. In fact, he doesn’t know which insurer even owns the product.
3. People have too many other financial priorities. I work in the ltc profession and I’m not buying one. Why? My savings is going elsewhere. I have a mortgage, tuition for my kid and my own retirement plans. I’ll work to self-insure before I’ll purchase LTC policy.
4. People think government (Medicare)will pay for long-term services and supports – they’re wrong. Others simply turn to the country’s current de facto long-term care insurance program (Medicaid), where you impoverish yourself – either by real means or artificially through a rogue financial planner.
However . . . . . if there were a national plan, such as the CLASS Act, and I could buy a supplemental product to wrap around that, and it had a Good Housekeeping seal from my state govt. I’d absolutely look at that. New ballgame for me. I’d then see it as part of my overall financial security strategy for my family. I sense a lot of other consumers would also. That’s an opportunity for the long-term care insurance profession and America as whole.