The CLASS Act Long Term Care Insurance Fiasco

Once again your duly elected representatives in the US Congress are foisting another Ponzi scheme on the American taxpayers in the form of the CLASS Act Long Term Care Insurance Program, which is part of the Obama administration’s controversial HR 320 health care act.  You may recall that a Ponzi scheme is plan whereby a scam artist takes money from people, promising investment in some operation which he promises will make you rich or offers fantastic benefits—but he actually never invests the money in anything, keeping most incoming funds for himself, and paying out to his customers just enough in “benefits” to make the appearance that his is a legitimate investment opportunity. The Bernie Madoff  debacle and the Social Security system are examples of this process.  Yet Bernie Madoff goes to jail, while our elected officials keep getting re-elected.

It is a painful reality to this writer that our supposedly high-minded, elected government officials are doing these things to the American public.  I am reminded of what Ben Franklin said in his autobiography about the elected officials of his time.  He noted that, as he saw it, they were basically motivated to take care of their own interests first and cared little for the common good!  I don’t think things have changed much in over two hundred years!  That is the case with this latest government “benefit” for the American public.

Probably the most egregious aspect of the CLASS Act Long Term Care Program is the fact that it has a 5-year waiting period.  Since this program wasn’t designed to become effective until 2011—but due to bureaucratic details needing to be worked out—it is unlikely to be available until 2013, it would be about 2018 before the government would have to start paying out benefits.  Meanwhile the government would have 5 years to collect revenues, (putting them into some sort of “trust fund” like they did with Social Security!?—yeah, sure!).  You know what’s going to happen here, don’t you?  The money collected will go into general revenues, will be spent on every Federal program from A to Z, and when the time comes to start paying out needed benefits, the money needed will come out of those general revenues, of which there is never enough with all our deficit spending, so we’ll still be borrowing money from China and Japan, making our national debt even worse.  This plan has been presented by Congress to be self sufficient, paid for by the users without taxpayer support, but we’ve all heard that tune before.

Details on this program have not yet been developed.  The plan is for the Department of Health and Human Services to develop administrative procedures in the near future.  But in general, the program is voluntary, with the insured person paying a monthly premium of $130 to $150 per month, making her eligible for modest benefits of $50 to $75 per day—which will cover very little in today’s market, much less in an inflationary future.  And you have to have been enrolled in the program for five years before you could draw benefits.

Let’s do a hypothetical case.  If you decide to enroll in the program at the outset you will probably pay $2000, + or -, per year for 5 years: $10,000.  If, right after this time, you become disabled and need long term care in a nursing home, costing $200 per day (conservative estimate), you still will need to cover at least $125 per day out of your own pocket.  This does not look like a good deal to us.  However, if you have one of the better private plans, your monthly premiums will be about 30% lower, with the benefits covering most of the nursing home costs!

Now, you might ask how private long term care insurers can do this for less cost than the government.  The reason is that private insurers tend to cover those who are at lower risk, whereas the government will be overwhelmed with the high risk individuals who are rejected by the private companies.  The government will tend to insure those who have not taken care of their health over the years, have put off purchasing Long Term Care insurance until they desperately need it, and have fewer resources in their lives.  Conversely, folks covered by the private insurers tend to purchase their Long Term Care insurance at a younger age, with lower premiums from the private companies—and these people are covered from day one!   Also private companies offer inflation coverage at low rates, which do not change over the life of the policy, but the CLASS government program will likely be tied to the Consumer Price Index, with Congress taking a bigger bite out of your wallet on a regular basis.  In general, the CLASS  program will be covering the the sickest people in our society, whereas the private insurers will be covering the healthiest.  And we know which group will cost the most.  In fact, through their “good health” discounts, the private insurers offer even lower rates the younger and healthier you are, and these rates are locked in permanently even if your health deteriorates.  Waiting is not good, but a high percentage of CLASS enrollees likely will.

Because of the nature of government, it is difficult to accurately assess the CLASS ACT plan, but we are reasonably sure that most Americans will be much better off with a specifically tailored private plan.  The CLASS ACT plan will not cover the costs of quality care in a nursing facility or at home as will private plans.  In the near future there will be a lot of confusion about the different aspects of long term care, so we invite you to contact us and we can give you an accurate, individualized perspective of your particular situation regarding long term care.