Long-Term Care and
the CLASS Act…
What employers need to know
to protect their employees
and their bottom line
A National Challenge…
Long-Term
Care
• Businesses
• Employees
• Government
2
Who needs
to learn about
Long-Term care?
Everyone!!!!
Legislative History
Health & Welfare Reform of 1996
TAX-DEDUCTIBLE premiums & TAX-FREE benefits
Deficit Reduction Act of 2005
• Increased lookback period
• Reduced ability to use annuities to shield assets
State Partnership Programs
Medicaid spend down protection
CLASS Act
Ted Kennedy legacy program included in healthcare reform
4
CLASS Act
• Community Living Assistance Services &
Supports
• Information provided is based on what is
currently known
• Many details including the final cost of
coverage will be determined by the
Department of Health and Human Services
5
CLASS Act
• National voluntary long-term care benefit
administered through participating
employers
• Financed exclusively by premiums paid by
participants
• Premiums must be set to ensure program is
viable for 75 years
6
CLASS Act
• 97% of premiums collected must be used to
pay claims
• All employees earning wages that qualify for
Social Security accepted regardless of age or
pre-existing medical conditions
7
CLASS Act
• Premiums automatically deducted from
payroll unless employees “opt-out”
• Alternative payment mechanism for those
who:
• Are self employed
• Do not have an employer
• Do not have an employer who elects to deduct
and withhold premiums for CLASS
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Implementation
Timeline
• January 1st, 2011 - Program is officially
established
• January 1st, 2012 - Eligibility requirements
finalized
• October 1st, 2012 - Three actuarially
sound plan designs developed by Health &
Human Service
• 2013 – Estimated rollout to employers
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Employers Must
Decide
• Participation is NOT mandatory
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Health Insurance
Limitations
Levels of Care
• Skilled
• Intermediate
(needing help with activities
• Custodial of daily living – ADL’s)
The Gap in Traditional
Health Coverage
1st 60 Days
Next 40 Days
After 100 Days
Skilled Care
Medically needed
Covered
Not Covered
Intermediate Care
Less frequent skilled care
Covered
Not Covered
Custodial Care
Help with ADLs or memory
Not Covered
Medicare
• Skilled care only
• Medical progress
continues
• 3 day prior
hospital stay
Medicaid
• Pays health care for the
poor (welfare)
• Not “entitled”
• Many must “spend
down” their assets to
qualify
• Not a gift
What’s the Risk?
“A study by the Department of Health and
Human Services indicates that people age 65
face at least 50% lifetime risk
of needing long-term care.”
Common Causes
for LTC
Young or old, LTC insurance picks up
where your health insurance leaves off.
Health Conditions
and Illness:
•
Injuries from:
•
•
Auto and motorcycle
accidents
Activities like skiing, horseback riding, diving
•
•
•
•
Stroke and Heart
Attack
Cancer
Diabetes
Arthritis and
Osteoporosis
Alzheimer’s,
Parkinsons
and MS
16
A Women’s Issue
According to the New England
Journal of Medicine:
• 1 in 2 WOMEN will spend
AT LEAST ONE YEAR in a
nursing home
• 1 in 3 MEN will spend
at LEAST ONE YEAR in a
nursing home
Cost of Care
Average Cost of Care In NJ
Home Health Aid
Assisted Living
Nursing Homes
$21.00/ hour
$40,418/ year
$123,005/ year
Prudential Long-Term Cost of Care Study, 2010
Impact on Employees
• Working Americans are forced to become
working caregivers
• Sponsored savings accumulated over a
lifetime is at risk
• Working age employees are generally
unaware of the risk they face or planning
solutions that are available while they are
in good health and can be approved for
coverage
Productivity is at Risk
Almost one-fifth of U.S. workers are informal caregivers
• 83% report arriving late, leaving early or
taking time off during the day
• 41% report having to take a leave of absence
• 37% report going from full time to part time
• 35% report giving up work entirely
• 14% Report turning down a promotion
• 12% report choosing early retirement
AARP Public Policy Institute, “Valuing the Invaluable: A New Look at the
Economic Value of Caregiving.” June 2007
“Employers lose an estimated $33.6 billion a year on
productivity due to employee caregiving”
“The MetLife Caregiving Costs Study: Productivity Losses to U.S. Business”
MetLife Mature Market Institute and the National Alliance for Caregiving, 2006.
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Working Caregivers
Increase Health
Insurance Utilization
• Working caregivers have poorer health
and more chronic conditions than their
non-caregiveing counterparts
• The increase in health care consumed for
caregiving employees is eight percent, or
$13.4 billion per year nationally
“The MetLife Study of Working Caregivers and Employer Healthcare Costs,” MetLife Mature Market
Institute and the University of Pittsburgh Institute on Aging, February 2010.
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CLASS Act vs.
Private Long-Term
Care Insurance
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Benefits
CLASS Act
• One plan design for
everyone
• Minimum average cash
benefit of $50/day
• Lifetime coverage
• Benefit increases by Urban
CPI
• Benefits can be reduced by
Department of HHS to
ensure financial viability
Private LTCi
• Plans designed around
individuals needs
• Benefits available from $50
to $500/day.
• Benefit periods from two
years to lifetime available
• Many benefit increase
options including 5%
simple and 5% compound
inflation protection
• Benefits cannot be
reduced without
policyholders approval 23
Underwriting
CLASS Act
• Working Americans 18 and
older earning wages subject
to Social Security are
eligible to receive coverage
regardless of pre-existing
health conditions or age
Private LTCi
• Employees working full
between 18 - 66 can apply
with a simplified
underwriting process
allowing all but those with
the most severe preexisting conditions to
receive coverage
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Cost of Coverage
CLASS Act
• Age based premiums TBD
but must be set to ensure
program viability for 75
years based on
guaranteeing coverage
regardless of age, health or
full time work status
• Coverage subsidized for the
young and poor
• Originally projected to cost
$30/ month premiums are
now projected to be as high
as $160 - $240/month
Private LTCi
• Premiums based on age at
application
• Discounts for good health,
married people and
employees at companies
offering coverage
• Private coverage projected
to be less expensive
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Enrollment Process
CLASS Act
• TBD
• Administrative costs
currently limited to 3% of
premiums collected
Private LTCi
• Communications provide
information to attract
employees to educational
workshops
• Live and web based
meetings provide
education on long-term
care and planning options
• One-on-one follow up
consultations help
employees and family
members customize
solutions
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Adverse Selection
•
•
•
•
Participation is not mandatory
Unknown educational process
GI for employees with minimum work requirements
Window for enrollment not limited - can opt-out and
opt back in with GI
• 75 year solvency requirement makes premiums
higher
• Subsidized coverage for students and those below
the poverty line
• Higher premiums will result in lower participation
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Insurance Death Spiral
Setting premiums at a rate sufficient to
cover costs further discourages persons in
better health from participation and may lead
to further premium increases. This affect has
been termed the “Insurance Death Spiral”
Richard Foster, head actuary of the Center for Medicare and
Medicaid Services – November 9 , 2009
th
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Vesting Period
CLASS Act
• Premium must be paid for
five year before benefits can
be paid
• Employee must be working
three of those five years
• If there has been a lapse in
payment for more than
three months, premiums
must have been paid for 24
consecutive months
Private LTCi
• No vesting period
• Benefits are payable after
satisfying an “elimination
period” that typically
range between 30 and 90
days
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Benefit Triggers
CLASS Act
• Participants must need help
with two OR three activities
of daily living including
eating, bathing, dressing,
continence, toileting and
transferring
OR
• When an individual requires
substantial supervision to
protect their health and
safety due to a cognitive
impairment
Private LTCi
• Same as the CLASS Act
except the number of
ADL’s to qualify is fixed at
two
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Future Premium Increases
CLASS Act
• Premiums can be increased
by the U.S. Department of
Health and Human Services
based on the financial
condition of the program
• Premiums cannot be
increased for people who
have paid premium for 20
years and who are age 65 or
older
Private LTCi
• Premiums are regulated at
the state level
• Insurers are mandated to
maintain significant
reserves based on the
level premium accepted
• Premium increases must
be approved by each state
for all policies in a given
series
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Tax Treatment
CLASS Act
• Premiums may be taxdeductible for individuals
who itemize deductions
• Benefits are received tax
free
Private LTCi
• Premiums paid by
employers are tax
deductible to companies
based on form or
organization
• Discrimination by class of
employee is allowed
• Premiums may be taxdeductible for individuals
who itemize deductions
• Benefits are received tax
free
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Dependent Coverage
CLASS Act
• Not available
Private LTCi
• Extended family members
including spouses,
parents, grandparents and
in-law relationships are
eligible for employer
sponsored discounts
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Comparison of Options
• Risk of premium increases
•
•
•
•
•
•
•
•
GI increases risk
Opt-in / Opt-out / Opt back in increases risk
Minimal work requirement increases risk
Higher premiums for GI decreases participation of young
people
Comprehensive education means better planning
Private LTCi reserves protect consumers
Insurance Commissioners protect consumers
Private LTCi more competitively priced for younger
health employees
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The Private LTCi
Option
• Premium discounts
• Simplified medical underwriting
• Education with one-on-one follow-up
meetings for interested employees
• Protect the bottom line
Solving the Problem
• Closing the HOLE in the basic safety net for
employees
• Protecting productivity &
profitability of employers
• Become part of the
solution
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