Long Term Health Care Insurance, approx $110 per month

Public option for long-term are insurance faces challenges

Posted on 17 March 2011

The public option for long-term care insurance is on the run.

The Community Living Assistance Services and Support plan (CLASS for short) was a little-noticed provision of the broader health care reform law passed last year. It aims to fill the current gap in long-term care (LTC) protection by offering modestly-priced coverage that emphasizes more flexible, community-based care over nursing homes.

But CLASS is under fire from critics who charge that it won’t be financially sustainable and will create a long-term drag on the federal deficit. President Obama’s deficit commission recommended reform or repeal of CLASS last December; Republicans in Congress are pushing for the latter option.

The Obama Administration is acknowledging the problems, and pledging to make adjustments. Health and Human Services Secretary Kathleen Sebelius made public comments recently indicating her department is addressing financial sustainability issues as it writes the rules and regulations for CLASS ahead of its anticipated 2013 rollout.

It’s not clear if CLASS will survive, but this much we know: The country will need to figure out how best to finance the cost of long-term care, which is expected to explode in the next several decades as the population ages.

The Center for Retirement Research at Boston College (CRR) says about one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives.

Medicare covers only a small portion of long-term care needs, and the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for a 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

Medicaid remains the nation’s largest LTC funder, paying for more than 40 percent of all care, But in most states, qualifying for Medicaid requires spending assets down to poverty levels, and the choices for care are limited. Meanwhile, privately-offered LTC insurance hasn’t caught on, having been bought by only about 5 percent of potential customers.

CLASS will be deployed mainly through the workplace as an opt-out choice in benefit plans. Employers don’t have to participate, but the opt-out feature will be important for those that do. It means employees will be in the plan unless they make an active decision to drop out.

And, while CLASS is aimed mainly at the workplace, there also will be a public exchange where policies can be purchased by those working for companies that don’t participate, or for self-employed people.

In the workplace, CLASS participants will pay an insurance premium via payroll deduction. After a five-year vesting period, CLASS provides a LTC benefit of no less than $50 per day. Two additional, very significant features make CLASS different than most private coverage: There will be no lifetime or dollar cap on benefits, and insurers can’t turn away applicants due to a pre-existing condition.

Sebelius acknowledged in her recent speech that there is a solid actuarial case that CLASS can’t fund itself as required under the health reform law.

A key concern is what actuaries call adverse selection. That occurs when consumers are able to make enrollment decisions that hurt an insurance program’s viability. In other words, healthy, younger people might not enroll at all, and others might sign up when they suspect a need to make claims could be imminent.

Premium pricing is another key issue. A flat monthly premium was envisioned originally, but benefit payouts would rise with costs. A survey by the American Council of Life Insurers (ACLI) found broad support for a public option LTC program, but that support fell sharply when proposed monthly premiums were mentioned. Just five percent of potential enrollees told ACLI they’d enroll if the monthly premium were set at $110; CBO’s modeling assumed a $123 monthly premium.

Sebelius said HHS is weighing options for making CLASS financially sustainable. Options include indexing premiums to the Consumer Price Index so that they keep pace with rising benefit costs, and closing loopholes that could allow enrollees to drop out of the plan and return later without paying penalties. HHS also is studying ways to encourage employer participation.

Watch Howard Gleckman, resident fellow at The Urban Institute, discuss prospects for CLASS:

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