Will The Health Care Bill Make Long Term Care Insurance Obsolete?
Regardless of your position on the polarizing debate in Washington, you may be wondering how all of this will affect your purchase of a Long Term Care Insurance (LTC) policy. There are valid concerns among citizens when the lawyers of Congress begin making changes to the rules we live by – especially when 1/6 of the economy is involved. In this article, we aim to provide some facts on the legislation and how it may change your decisions regarding Long Term Care Insurance.
The Class Act : 2010′s Government Long Term Care Program
The Late Ted Kennedy championed a government program for Long Term Care Insurance for years as a way to help middle-income Americans plan for their needs down the road. After all, we all see the coming earthquake of baby boomer retirement and the following after shocks of a large percentage of Americans needing Long Term Care. The Class Act, part of the Health Care bill, was designed to help pay for Home Health Care with a modest daily benefit of somewhere around $50/day ($1,500/mo). If you are asking yourself if you read that correctly, the answer is yes. The government LTC program is going to be modest in comparison to private Long Term Care Insurance programs, and that’s an understatement.
While the government plan is expected to pay in the $50/day range (with inflation adjustments factored in each year), private LTC policies pay anywhere from $50/day to $500/day, with most policies falling in the range of $100 – $200/day. This is more in line with actual costs we see and hear about every day. So, right off the bat, the plan is a “one size fits all” plan, and the size is Small.
However, as small as the benefit may be, it is a “lifetime” benefit, meaning that it never runs out. So if you are one of the fraction of people who live many years needing Long Term Care, this “unlimited” benefit will be a boon. Private plans offer such benefits in most states as well, but few purchase these benefits, because 92% of claims last for three years or less.
America’s Uninsurable : The Real Winners
At our company, we see on a daily basis the wonderful success stories, and the unfortunate realities of private Long Term Care Insurance. One such unfortunate reality is that a large percentage of Americans are unable to qualify for private Long Tern Care Insurance plans. They may have weight issues (obesity), conditions that historically lead to the need for Long Term Care, such as stroke, memory loss, or histories of osteoporosis, or perhaps they may have made life decisions that lead to a decline, such as being diabetic but still smoking. All of these conditions lead to huge risks for the insurance companies, who sell these policies as a risk management tool. Therefore, these high risks are declined coverage on the private market. Things change when the government gets involved.
With the CLASS Act, the rules of insurability are thrown out the window. In the government program, a diabetic smoker may now be able to attain Long Term Care Insurance, despite what the actuarial’s say. So long as you are working, you may be able to get coverage, under the proposed rules in the Senate bill that just passed the House (3/21/2010). Therefore, we deem the uninsurable of America the winners. Does that mean someone loses?
Many experts, including actuaries at the government’s own Centers for Medicare and Medicaid Services, have argued that a combination of relatively rich benefits and the opt-out provision would make the program actuarially unsound, by encouraging workers with health problems to flock to the program and healthy young workers to opt out.
The problem with the CLASS Act is that it is both voluntary and at the same time guarantees coverage. It’s the opposite of what insurance is traditionally meant to be: a tool for pooling and managing risk. With no medical underwriting, according the Medicare’s chief actuary (and common sense), the government plan will attract those with less than desirable medical histories. The healthy will flock to private Long Term Care Insurance for lower premiums and healthier peer groups. This sets up what Medicare calls, “an insurance death spiral,” where the unhealthy inevitably begin to make massive amounts of claims, pushing up premiums for all, and further isolating the pool of insured to only the most desperate. Meanwhile, the healthy among us are in medically-underwritten (and thus much more secure) private Long Term Care Insurance plans.
Creative Congressional Math
Coming Soon. This article is a work in progress.
Even CNN mentions that this plan is not sound “long-term”:
In the first 10 years, the program it is expected to take in more money than it pays out, which is why the CBO says it would reduce the deficit by $70 billion. But in the second decade and beyond, the program is projected to pay out more than it takes in, and will therefore contribute to the deficit.
That’s why some say that the CLASS Act is a budget gimmick that will not contribute to the potential of health reform to reduce the deficit.
Source: CNN
Sources: NY Times Blog, Washington Post,
