Long term care planning after health care reform
•Download as PPTX, PDF•
0 likes•234 views
The document discusses the Community Living Assistance Services and Supports (CLASS) program introduced by the 2010 health care reform. The CLASS program is intended to help people pay for long-term care needs, encourage earlier planning, and reduce costs currently paid by Medicaid. However, there is uncertainty around how much the voluntary program will cost individuals. Premiums are estimated to range from $30-$240 per month depending on enrollment levels, benefits, and the health of participants. The success of the program will depend on accurately pricing premiums to avoid an adverse selection spiral without discouraging enrollment.
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (17)
Similar to Long term care planning after health care reform
Similar to Long term care planning after health care reform (20)
Recently uploaded
Recently uploaded (20)
Long term care planning after health care reform
- 1. Long-term Care Planning After Health Care Reform Presented By John Ryan, CFP® Ryan Insurance Strategy Consultants With Claude Thau, Target Insurance
- 2. About Ryan Insurance Strategy Consultants .John Ryan, CFP®, and Ryan Investment Strategy Consultants works exclusively with fee-only financial advisors to help them analyze insurance solutions for their clients and has been working with fee-only advisors since 1983. Long-term Care has been part of our advisory services since 1990. NAPFA Resource Partner. Licensed to do business in all states, Ryan Insurance Strategy Consultants is an independent insurance brokerage firm specializing in life, disability and long-term care insurance policy analysis and underwriting. 2
- 3. About Claude Thau Since 1994, focused exclusively on Long-Term Care. Actuary. “Senior Market Advisor” named him to the first list of “10 Power People in the Long-term Care Industry”. Ran one of the major carriers’ LTC divisions. 3
- 4. How to Ask A Question 4
- 5. The CLASS Act Presented by: Claude Thau 913-403-5824 Cthau@targetins.com
- 6. Problem: LTC needs will soar, but few people are preparing People do not see LTC as an imminent risk, so they put off worrying about it. When they become concerned, they may be uninsurable or LTCi may seem too costly. Government pays 2/3 of commercial LTC, almost entirely on nursing homes. To reduce its cost, the government wants to encourage keeping people at home and family care-giving. 6
- 7. The CLASS* Program is Intended to: Help people stay independent at home Build supportive service infrastructure Alleviate family caregiver burdens Reverse Medicaid’s institutional bias Encourage people to start insuring at younger age * Community Living Assistance Services and Supports
- 8. Problem: LTC Impact on Employers Government pays 2/3 of commercial LTC. But if you add informal caregiving, the family already bears ¾ of the burden. Employers, overall, are increasingly negatively impacted by employees’ caregiving burdens. Have your clients been adversely impacted by employees needing to be caregivers? 8
- 9. The Impact on Employers 80% of working caregivers have come in late or left early as a result 10% shifted to part-time work 15% passed up promotions or quit 25% missed out on transfers or relocations 22% were unable to acquire new job skills
- 11. The CLASS* Program New government LTCi program passed in HCR. Administered through employers Employers can choose whether to offer it or not Voluntary coverage, intended to be paid entirely by employees Non-workers (including non-working spouses) are NOT eligible Alternate enrollment methods will be created for people whose employer does not offer the program. Uncertainty in many respects, including legal contests, but presents financial, administrative and philosophical risk for employers. * Community Living Assistance Services and Supports
- 12. Time Frame By 1Oct12, HHS is supposed to develop 3 alternatives and select one for exposure. Should be available in 2013. 13
- 13. LTCi Benefits under CLASS Must need help with 2+ (or 3+) ADLs* or be cognitively impaired or similar need Need must be expected to last 90+ days As soon as needed, for as long as needed Can be used to pay family member, etc. Amt. varies based on severity (2-6 levels) Benefits increase annually with urban CPI Facility care covered, although law unclear Advocacy & counseling services provided 14 * ADLs are Bathing, Eating, Dressing, Toileting, Continence, Transferring
- 14. Cost Uncertainty 1) Price must reflect: Anti-selection (weighted toward unhealthy) Subsidy for impoverished 2) But then, fewer healthy & middle class people enroll, causing price to be re-calculated upward. Can lead to spiral. 3) If price approaches assigned risk pool levels, everybody would prefer private LTCi. 15
- 15. Efforts to Control CLASS Premium Level Enrollees must be actively@work, unconfined & able Eliminates unhealthy people and early claims Does not address employer’s issues “Negative” enrollment (“in”, unless actively opt out) Same benefit for all (average = $50+/day). Proponents predict complementing with private LTCi. Efforts to avoid “gaming” the system No benefits paid until in plan for 5 years Must be actively-at-work at least 3 of 1st 5 yrs pd Must have pd most recent 2 yrs to receive benefits Premium penalties if you discontinue for 90+ days 16
- 16. Pricing Risks Remain Actively-at-work defined as $1,120 annual income HHS Secretary shall promulgate exceptions No health questions up-front and maybe biennially Inflation risk because benefits increase with CPI Broad expenses can be used to justify benefits Admin expense load limited to 3% of premiums; inadequate for marketing, claim qualification, fraud control, counseling, advocacy, etc.? Healthy couples might opt for private LTCi Cost of $5 subsidy might be under-estimated Potential fraud: false claim & severity, lapse, etc. 17
- 17. How Much Will It Cost? Originally $30/mo., then $65/mo. in Jan09 American Academy of Actuaries: $160/month (6% enrollment & $75/day average benefit) CMS actuary: $240/mo. (with 2% enrollment) CBO assumed: $123/mo. (with high enrollment) Matthew Greenwald & Associates’ survey 43% would participate at $35/mo.; 3% at $160/month Higher prices shift distribution toward less-healthy and subsidized buyers 18
- 18. Q& A Claude Thau
- 19. Polling Question:What Do You Think? 20 Will the CLASS Program be: 1) priced adequately? 2) under-priced?
- 20. Contact Us: Ryan Insurance Strategy Consultants 800.796.0909 John Ryan ext 102 John_Ryan@Ryan-Insurance.net www.Ryan-Insurance.net Webinar Audio will be posted in the “Long-Term Care” section of website Indicate in the “Questions” area if you would like a copy of the slides 21
Editor's Notes
- Here’s the problem that stimulated government action.People don’t consider long-term care to be an imminent threat, so they delay preparing for it. By the time they become concerned, they may no longer be insurable or may consider long-term care insurance to be too costly. The result is that government pays 2/3 of the cost of commercial LTC, almost entirely on nursing homes and generally after people have spent down their savings.To reduce its cost for LTC, the government wants to encourage families to keep care recipients at home and the government wants to encourage family caregiving.
- Although it is true that the government pays 2/3 of the cost of commercial care, if you assign a value to family caregiving, using a low estimate of its value, a different picture emerges – families bear 75% of the burden of LTC. Employers are increasingly negatively impacted by employees’ caregiving burdens, although often they don’t know, because employees choose not to share such problems with their employers. Are you aware of having been impacted by employee caregiving needs?
- The secretary of Health and Human Services is required to develop 3 alternatives and pick one by October 1, 2012. At that time, it will be exposed for public comment. It should be available in early 2013. While that seems to be a long time off, it behooves employers to consider ways they can retain maximum control over their future.
- To qualify for benefits under CLASS, a person must need human help with either 2 or 3 of the six Activities of Daily Living cited here (Bathing, Eating, Dressing, Toileting, Continence and Transferring). Alternatively they can qualify if they need supervision due to cognitive impairment. The government has not yet decided whether the trigger will be needing help with 2 of the 6 Activities or with 3 of the 6 activities. Private LTCi policies use the more favorable 2 out of 6 alternative.Just like private LTCi, the need must be expected to last at least 90 days.Benefits can be paid as soon as the need develops and can be paid for as long as the need develops. Most people design their private insurance policies to be less generous. Most people buy coverage that starts only after they have needed care for 90 days and most policies would eventually run out if someone has a long need for care.The CLASS Program benefits can not only be used to pay family members, it is encouraged that the benefits be used that way, whereas private LTCi will typically pay informal third-party caregivers but not family caregivers. Covering family caregivers increases the cost a lot – generally 60% to 100% more.Unlike private LTCi, the Health Care Reform law requires CLASS benefits to vary based on severity, with anywhere from 2 to 6 different levels. In contrast, private LTCi will reimburse costs up to the selected maximum benefit. So it two people with identical policies share a room and pay the same price each month, private LTCi can accommodate each person’s needs, while the CLASS Program would pay less benefit to the person who exhibited less severe need for care.CLASS benefits must increase each year according to the CPI. This provision may not work as intended. In private LTCi, the benefits typically increase either 5% each year or according to the CPI.Although the law is unclear, the consensus is that the costs of Assisted Living Facilities and of Nursing Homes are covered by CLASS.The CLASS Program also provides advocacy and counseling services, which seem similar to services provided by private LTCi.***************************************************************************************************Presumptive eligibility if leaving facility, so … But does not say presumptive if receiving benefits in a facility! Nonetheless, facility appears to be the maximum benefit.The following (Section 3205 ©(1)(B))“USE OF CASH BENEFITS.—Cash benefits paid into a Life Independence Account of an eligible beneficiary shall be used to purchase nonmedical services and supports that the beneficiary needs to maintain his or her independence at home or in another residential setting of their choice in the community, including (but not limited to) home modifications, assistive technology, accessible transportation, homemaker services, respite care, personal assistance services, home care aides, and nursing support. Nothing in the preceding sentence shall prevent an eligible beneficiary from using cash benefits paid into a Life Independence Account for obtaining assistance with decision making concerning medical care, including the right to accept or refuse medical or surgical treatment and theright to formulate advance directives or other written instructions recognized under State law, such as a living will or durable power of attorney for health care, in the case that an injury or illness causes the individual to be unable to make health care decisions.”
- The presence of anti-selection and cost transfer must be reflected, causing the price to be higher than it otherwise would be. Higher prices do not keep subsidized people from enrolling because their price is limited to $5/month. If anything, with higher prices, more subsidized people might enroll, as it becomes more obvious what a good deal they have. Higher prices are also unlikely to deter unhealthy people because they know they need the coverage and don’t have an alternative. However higher prices do discourage enrollment by healthy people who would pay full price. Some of those people might find less expensive coverage from private insurers. A cost spiral can occur --- prices are raised to reflect anti-selection and cost subsidy, but then it is recognized that fewer healthy full-price people will buy, so the price has to be increased further. It is conceivable that the price could approach the level of an assigned risk pool, in which case no one would buy CLASS other than subsidized and very unhealthy people. If that happens, everyone would prefer private insurance if they can get it.
- The government has done several things to try to keep CLASS premiums reasonable, despite the anti-selection and cost transfer risks.Enrollees must be actively-at-work, not confined and able to perform all usual responsibilities of their jobs. That restriction minimizes early claims. Unfortunately, it also means that parents and grandparents of employees --- the people who most expose an employer to risk --- can not be insured under CLASS.If an employer adopts the CLASS program, most commentators report that all employees must be enrolled unless they specifically opt out. This “negative enrollment” strategy will boost participation by enrolling people who do not want to participate.Third, sick people are NOT permitted to buy higher benefits than other people do, thereby controlling some anti-selection. Because the one-size-fits-all average benefit of $50 to $75/day is low compared to the cost of LTC, proponents predict that the CLASS Program will be a boon for a new type of private LTCi --- LTCi Supp.There are also a number of other rules to avoid “gaming” the system. No benefits are payable until you’ve paid into the system for at least 5 years and you must remain employed for at least 3 of those 5 years. If you delay buying until you need LTC, you’re unlikely to have 3 working years left. If you do have 3 more working years, the 5-year moratorium could significantly reduce your benefits.You must have paid the most recent two years in order to receive benefits and the premium is adjusted upward if you re-enroll after having dropped out of the program for more than 90 days. These rules are intended to keep you from paying for 5 years at a young age, then dropping out until you need care.*************************************Note 4c technically seems to apply only if there has been a lapse longer than 90 days. Could someone stop premiums every year for November and December? Would they then have to pay back premiums?as of the date described in subparagraph(B)—‘‘(i) has paid premiums for enrollment in such program for at least 60 months;‘‘(ii) has earned, with respect to at least 3 calendar years that occur during the first 60 months for which the individual has paid premiums for enrollment in the program, at least an amount equal to the amount of wages and self-employment income which an individual must have in order to be credited with a quarter of coverage under section 213(d) of the Social Security Act for the year; and‘‘(iii) has paid premiums for enrollment in such program for at least 24 consecutive months, if a lapsein premium payments of more than 3 months has occurred during the period that begins on the dateof the individual’s enrollment and ends on the date of such determination.
- However, pricing risks remain. A person can earn as little as $1120 annual income and still be considered to be “actively-at-work” and the law requires the secretary to promulgate rules that will waive even that meager requirement.There are no health questions up-front and people can enroll as frequently as every two years without health questions.There is an inflation risk because the benefits increase with inflation.The government encourages the money to be given to family caregivers – with private LTCi, that feature increases the cost by 60% to 100% because it creates claims that otherwise would not exist.The law permits only 3% of the premium to be used for marketing, claim qualification, fraud control and investigation, counseling, advocacy and other ancillary costs. That is clearly substantially insufficient.The government program guarantees issue and charges the same price for everyone the same age. Private insurers generally provide 10% to 15% discounts for people who are in good health and 30% to 40% discounts for couples if both buy. Hence, healthy people, especially couples, might opt for private insurance.That can contribute to the cost of the subsidy being under-estimated.Lastly there are potential areas of fraud, which might be particularly hard to control given the insufficient margin for expenses.********************************************************************Could pay from 25-29, then lapse 90 days at 30, then re-enter at 35, paying age 30 premiums, then lapse, then re-enter at age 40 paying age 35 premiums, etc.If someone is in a facility with a short-term need but has attested that they qualify (expected to last 90 days), they presumptively qualify. How is that corrected, if it was inaccurate?Not really clear what age is used to determine the premium for someone who was a student or below poverty line and now is no longer qualified for the $5 premium.Requiring that there be no increase until premium is expected to be insufficient for the next 20 years. Any retired person over age 65 who has paid for 20 years would be exempted from the premium increase. Presumptive eligibility is assumed if an enrollee has applied for and attests eligibility for the maximum cash benefit; is a patient in a hospital (for long-term care reasons), a nursing facility, an intermediate care facility for the mentally retarded, or an institution for mental diseases; and is in the process of planning to discharge from the hospital, facility, or institution, or is within 60 days of such a discharge.
- When the CLASS Program was originally proposed in 2003, the price was set at $30/month. Despite criticism that $30 was entirely unrealistic, it stayed at $30 until it increased to $65/month early in 2009.Then the American Academy of Actuaries analyzed the program, concluding that it would cost $160/month if 6% of both the subsidized and non-subsidized populations participated.Richard Foster, actuary for the Centers for Medicare and Medicaid Services, responded that participation would be more likely to be 2%, which he felt would increase the premium to $240/month.The Congressional Budget Office assumed a monthly cost of $123/month and assumed that 3.5% of ALL adults would enroll. Considering that non-workers are ineligible, that seems to be a high percentage.In a survey done in 2009, 43% of the respondents said they would buy CLASS coverage if it cost $35/mo, but only 3% would buy if it cost $160/month, only half as many as the American Academy of Actuaries had assumed. Furthermore, it is easy for people to say they would buy coverage --- when the time comes, they are less likely to part with their money than they had thought. My guess is that if 3% say they’ll buy under a particular set of circumstances, only about 1.5% will actually do so.Traditionally, social insurance programs has been under-priced because:Benefit and administrative costs are often under-estimated.Environmental changes occur which increase the cost. For example, more people survive to an older age, perhaps due to reduced smoking, or new drugs and medical technology drive up health care costs.There can be an unintended impact on the public psyche. For example, in the case of the CLASS Program, many hidden cases of people needing LTC may emerge if family caregivers can be paid.Of course, politicians find it very attractive to sweeten and expand benefits, but don’t have the same appetite for increasing premiums.There are also some ancillary costs that may not be recognized, such as the downward pressure on state and federal tax receipts.Of course, there is the risk that the money set arise for such a program might end up getting used for a different purpose.*********************************************************60% vote of Senate (AS determined by the Chair) allows funds to be used for other purposes with extremely limited debate and appeal by Senator to the Chair’s decision must have 60% vote.Potential impact of cut-off (e.g., 75 years)The cost is uncertain, yet clearly expensive.***********************************************************CBO assumed a $50/day HC benefit and a larger facility benefit, hence seemed to be using a $75 average also.http://www.tnr.com/blog/the-treatment/class-act-the-balance?page=0,1Note:Higher prices discourage enrollment by people eligible for private LTCi, especially if they get preferred or couples discounts.Higher prices may actually encourage MORE enrollment by people below the poverty level
- What do you think?Will the CLASS Program be priced adequately or do you think it will be under-priced?