Window of Opportunity
How the CLASS Act can boost sales for LTCI agents
The Community Living Assistance Services and Support Act was signed into law on March 23, 2010, and is a national, voluntary long-term care insurance program that was buried deep within the Affordable Care Act. CLASS is designed to make insured long-term care coverage available to more people by shifting the burden from government-supported programs to the insured.
What the CLASS Act has done is help increase the visibility of LTCI. It is not, however, the threat to business that many LTCI agents fear. CLASS simply will not be as attractive to consumers, especially once they are educated about current long-term care insurance options that offer better benefits with a shorter waiting period at just about the same price point. This provides tremendous opportunity for agents and brokers looking to expand their product portfolio.
Growing in importance
There is no denying that long-term care insurance is becoming increasingly important. As the population of the United States ages, the demand for care is increasing. The U.S. Department of Health and Human Services estimates that about 9 million Americans over the age of 65 will need long-term care services this year, increasing to about 12 million by 2020. Experts estimate that 70 percent of individuals over 65 will need long-term care services, with more than 40 percent requiring nursing home care.
Such care is costly. The American Association for Long-Term Care Insurance found that the median cost for nursing home care across the country in 2008 varied between $72,500 and $81,400 per year. Care in an assisted living facility totaled about $41,500 per year.
Families are often dismayed to discover that Medicare does not cover long-term care, except following hospitalization, and then only for a limited time. Instead, many end up relying on Medicaid coverage once assets have been spent down. In addition, many are shocked to learn that this diminishing of assets includes funds that they have saved and that their employer has contributed to their 401(k) program. HHS reports that the total cost of long-term care services in 2005 was $200 billion, with roughly half paid by Medicaid and only about 20 percent covered by Medicare. Private resources make up the difference — and that is why long-term care insurance has become an attractive benefit for workers.
Recognizing a gap in coverage that has become a ballooning expense for Medicaid, federal policy makers created an employer-based insurance vehicle to encourage people to protect themselves from the expenses of long-term care. When employers opt into the CLASS system, they collect premiums from enrolled employees, which are then transmitted to the government.
Policymakers structured CLASS to keep costs low enough to encourage people to buy the insurance — but in doing so, they rendered it much less useful then other products on the market today. First, they set the initial benefits at $50 per day, well short of the cost of long-term care services in any category (home care, the least-costly option, typically costs about $80 for four hours of service per day). Second, they required a waiting period of five years to allow premiums to accumulate before payouts begin.
Because the program does not take effect until 2014, federal regulators have not yet determined pricing or other parameters. But the Congressional Budget Office has suggested a premium of $123 per month for a 60-year-old enrollee, while the Centers for Medicare and Medicaid Services have estimated a premium of $180.
In addition, private plans typically have an elimination period of 90 days rather than the five years set under the CLASS program. This means employees are eligible for benefits much faster.
The selling opportunity
One thing that policymakers were right about is that our aging workforce needs to become aware of the potential need for long-term care and begin planning for it. Regardless of an employer’s decision to participate in the CLASS program, a private alternative makes sense.
Agents can help employers find the best long-term care policy for their needs and work with them to set up this benefit in a way that gives them a powerful tool to attract and retain employees. The options include: fully funding the benefit for the entire workforce or only select employees; offering the benefit as an employee-paid, voluntary program; or somewhere in between, with employees allowed to “buy up” to higher benefits.
Agents can play a strong role in guiding the decision-making to help ensure that an LTCI program works for both the employer’s budget and the employees’ needs — and that will make the agent’s performance a “class act” in anyone’s book. «
Samuel H. Fleet is president of AmWINS Group Benefits, a leading wholesale broker of comprehensive group insurance programs and administrative services