We are living in some fast-paced times, legislatively speaking.  That is to say, the US Congress and President are considering lots of proposals right now, especially with respect to health care.  One proposal on the table is a type of government provided long-term care insurance.  For the NPR perspective, read the article, A Forgotten Health Debate: Funding Long-term Care.  The proposal is from Senator Ted Kennedy and a pretty good outline on the so-called CLASS-Act can be found at the NY Times New Old Age blog.  Naturally, being in the long-term care insurance business, we are very interested in this proposal and of course will have a natural bias against it.  That said, let's look at some facts and some third-party opinions.

Adverse Selection : The Biggest Threat

One of the biggest problems in insurance is adverse selection (read a definition).  With government insurance, and particularly government long-term care insurance, adverse selection becomes an even bigger problem.

With all government insurance programs, guaranteed acceptance is one of the first things that is advertised.  The thought is that if the pool of insured is large enough, the healthy people will more than make up for the sick.  While this CAN be true, it's not true by definition.  And with optional programs, the healthy tend to opt out, especially initially, while the sick will be on board from the beginning.

The way insurance works is to spread out risk over all types of people.  By doing so, a group can all pay a low premium with the chance of getting a much higher benefit.  Insurance is not an investment; it is in fact the opposite. So when adverse selection is introduced into an insurance plan, the effects can be disasterous: insolvent plans and future premium increases.

From The Source: Actuaries

The American Academy of Actuaries (say that three times quickly) just published a report  on the proposed long-term care program (CLASS).  From a recent press release, "The analysis was performed by a joint work group of the American Academy of Actuaries Federal Long-Term Care Task Force and the Society of Actuaries Long-Term Care Insurance Section Council."

The findings of the report indicate that premiums will have to rise and that this insurance may end up costing closer to $1200 per person per year - and that's assuming younger people join the plan.  When you consider the fact that these policies will pay just $50/day per the current proposal, the deal becomes less and less appealing.

Summary: Private Insurance Alternative

In sum: regardless of what LTC programs are introduced, there will be a market for health-qualified long-term care insurance.  For healthy people, private insurance will remain the best deal.  Because unhealthy people cannot get insurance in many circumstances, the rates are lower for those who ARE healthy.

For people who are uninsurable in a private system, the government long-term care insurance program, if passed, will be a Godsend.