S
hould You Opt Out? Employers • Employees • The Nation
Table of Contents
Overview
2
Overview
3
The Long-Term Care Challenge
Included in the 906-page legislation commonly known as the "healthcare reform" act, lies a 19-page section addressing an important issue likely to impact you, your employees and your company.
• What does it cost?
• Who pays the bill?
• What is the impact on your business?
5
History and Intent of the CLASS Act
6
Timeline
6
What CLASS Requires of Employers
7
CLASS Eligibility and Benefits
• Who is eligible for coverage?
• When are benefits paid?
• How much are benefits?
• Who can provide care?
8
Enrollment Provisions
9
Important Considerations
• Benefit levels
• Premium rates
• Five-year vesting requirement
• Dependent coverage
• Underwriting
• Long-term viability
13
Conclusion
The Community Living Assistance Services and Supports Act, or CLASS Act, is part of the Patient Protection and Affordable Care Act signed into law by President Obama in March 2010. The CLASS Act establishes a national government-run long-term care insurance program, to be offered primarily through employers. The legislation signals the government's recognition of the need for long-term care planning. People of any age can require long-term care services and few are equipped to pay the high price associated with such care. In the majority of cases, care is provided by family members or other unpaid caregivers, a situation that ultimately affects employers. According to one study, productivity losses resulting from the burden of caregiving cost businesses an estimated $33.6 billion annually. The CLASS Act is the federal government's attempt to offer long-term care coverage to as many people as possible. However, the legislation has its share of shortcomings. Areas of concern include inadequate benefits, expensive premiums and uncertain long-term viability. Nonetheless, the CLASS Act is bringing to light the value of long-term care insurance as an important estate planning and financial preservation strategy. As an employer, you will decide to opt in or opt out of the CLASS program. Your employees will automatically be enrolled unless they elect to opt out, whether the program is offered through your workplace or other alternative means of enrollment as yet to be determined by Department of Health and Human Services. Many employers will choose to instead offer employees private longterm care insurance. This alternative is relieving employers of the burdensome administrative tasks inherent in CLASS participation, as well as providing employees access to significantly more secure, flexible and cost effective solutions to long-term care needs. The CLASS Program though may provide an excellent option for those employees who are unable to qualify, because of poor health, for a private long term care insurance policy.
1
2
The Long-Term Care Challenge Compared to the number of people who will need long-term care at some point in their life, relatively few have planned accordingly. Misconceptions about the likelihood of needing care, its cost and who will foot the bill may be to blame. In reality, an estimated 12 million Americans of all ages currently need long term care services and 40% of nursing home residents are under the age of 65, debunking the myth long term care is solely an issue for the elderly.1 Unable to fully care for themselves, individuals receive long term care in a variety of settings including at home or in an assisted living or skilled nursing facility.
What does it cost? Like healthcare in general, long-term care comes with a hefty price tag attached. MetLife Mature Market Institute's 2010 Market Survey of Long Term Care Costs offers this glance at national average longterm care rates: Get a Long-term care insurance quote here. In 20 years it will cost $ 619,769.18 For 3 years of care
• A yearlong stay in a nursing home costs $83,585 for a private room or $74,825 for a semi-private room. • The monthly base rate in an assisted living community rings up at $3,293. • Hourly rates for home health aides average out at $21. Daily rates for adult day services come in at $67. As high as rates are today, they will inevitably continue to increase in the future. From 2004 to 2010, the compound annual growth rate averaged six percent according to one report.
Who pays the bill? All too often, a long-term care event wipes out a person’s savings. Contrary to popular belief, most long-term care services are not covered by Medicare, major medical or disability insurance policies. In addition, the future of both Medicare and Medicaid is facing serious financial challenges due to an aging population. Individuals with reasonable income and assets will most likely finance longterm care on their own, making long-term care insurance a wise investment.
What is the impact on your business? With an increasingly older population, demographic trends indicate that more and more employees of all ages will assume the role of family caregiver. Studies show that employees with caregiving responsibilities are more likely to experience health conditions from depression to diabetes, costing employers 8% more in healthcare costs for these employees than non-caregiving workers. In addition, employers are experiencing productivity losses due to issues such as absenteeism, workplace disruptions and reduced job status of working caregivers, costing them as much as $33.6 billion a year nationally.2 In addition to protection from these financial threats, many employers view long term care insurance as a way protect the retirement assets their employees are accumulating through their 401K and pension programs. Not surprisingly, long-term care insurance has emerged as one of the most sought after employee and executive benefits.
3
http://www.ltcfp.com/ltcfp/requestquote.aspx
4
Timeline Total Estimated Cost to Employers of All Full Time Employed Caregivers Cost per Employee
Total Employer Cost
Replacing Employees
$413
$6,585,310,888
Absenteeism
$320
$5,096,925,912
Partial Absenteeism
$121
$1,923,730,754
Workday Interruptions
$394
$6,282,281,750
Eldercare Crisis
$238
$3,799,082,202
Supervisor Time
$113
$1,796,385,842
Unpaid Leave
$212
$3,377,082,202
Full-Time to Part-Time
$299
$4,758,135,522
$2,110
$33,619,070,346
Total
MetLife Care Giving Cost Study: Productivity Loss to US Business, 2006
History & Intent of the CLASS Act For decades, the federal government has been trying to encourage Americans to buy long-term care insurance. Past efforts include the creation of tax incentives for individuals and employers who purchase long-term care insurance policies. The government itself is not in a position to pay the bill for Americans' long term care. Medicare provides almost no benefits and Medicaid (welfare) is designed to pay only after individuals have expended their own financial resources to near poverty levels before meeting Medicaid requirements. In an attempt to help working Americans pay for care in their homes or community if inflicted with functional impairments, the late Senator Ted Kennedy introduced the CLASS Act in 2004. The legislation was signed into law as part of the healthcare reform act on March 23, 2010. It’s purpose is to establish a national voluntary program for purchasing community living assisted services in order to: 1. Provide individuals with functional limitations the tools to allow them to maintain their personal and financial independence through a new financing strategy for community living assistance services 2. Establish an infrastructure for such services;
Although the CLASS Act became law in spring 2010, several details have yet to be decided, leaving prospective participants with many unanswered questions. Answers should be forthcoming as the Department of Health & Human Services works through the legislation's complexities. The following target dates have been set: January 1, 2011 - Program becomes effective January 1, 2012 - Eligibility requirements will be announced October 1, 2012 - Premium rates will be determined June 30, 2013 - Estimated rollout to employers January 1, 2014 - Initial annual report on solvency due to Congress
What CLASS Requires of Employers As an employer, you will be required to make a decision about whether to opt in or opt out of the CLASS program. Employers who choose to participate in CLASS should fully understand what the program will demand of them, as well as what it will and will not deliver to their employees. Companies will be required to handle administration of the program including setting up an auto-enrollment process, managing the opt-out option for employees declining participation, processing payroll deductions for premium for participating employees, and remitting premiums to the federal government. Beyond that, the Department of Health and Human Services has yet to clearly define the role businesses will play in funding the administrative cost of CLASS. To avoid taking on uncertain costs and possibly paying the price of the federal government's learning curve, many employers are exploring alternate longterm care coverage options in the private sector.
3. Alleviate burdens on family caregivers; 4. Address current bias toward institutional care by providing financing and infrastructure that supports personal choice and independence.
5
http://www.ltcfp.com
6
CLASS Eligibility & Benefits Who is eligible for coverage? Individuals 18 years or older who earn wages subject to Social Security taxes will be eligible for CLASS coverage regardless of any pre-existing medical conditions. There is no further underwriting beyond the requirement that the employee is "actively-at-work." Self-employed people paying associated self-employment taxes will also be eligible. However, unlike private long-term care insurance, an employee's family members are not eligible to enroll in the CLASS program under the employee's plan.
When are benefits paid? To be eligible for benefits, participants must first complete a five-year vesting period, which entails paying premiums for five years and having been employed for at least three of those years. Benefits will be payable when a vested participant has a functional limitation expected to last at least 90 days that involves a loss of two or more Activities of Daily Living, or has severe cognitive impairment. Activities of Daily Living include bathing, dressing, toileting, transferring, continence and eating. Benefits will be paid for as long as the covered individual can prove that benefit eligibility criteria continue to be met.
How much are benefits? For participants determined to be eligible for benefits, the CLASS guarantees an average cash benefit of at least $50 a day. The benefit amount will be dependent on the degree of impairment, and will be adjusted annually for inflation based on the CPI.
Who can provide care? Benefits are payable whether or not any formal services are being received, and may be used to compensate relatives, friends or hired help who are providing care. Benefits can also be applied toward the cost of services provided at an assisted living facility or nursing home.
7
Fina a Long-term care agent
Enrollment Provisions Employers participating in the CLASS program will automatically enroll their employees unless employees specifically opt out. The legislation outlines the following provisions pertaining to enrollment, disenrollment and re-enrollment.
Initial Opt Out Employees who choose to opt out when the CLASS program is first offered to them may subsequently enroll only during open enrollment periods to be scheduled by the government biennially, at most.
Unemployment After Enrollment Program participants who leave their jobs are eligible to remain in the program as long as they continue to make premium payments.
Opting Out Post-Enrollment Individuals enrolled in the program can choose to end coverage only during an annual disenrollment period. However, disenrollment for failure to pay premiums can happen at any time.
Lapsed Coverage Participants who fail to make premium payments for three months will be considered a new enrollee if they choose to begin making payments again. Premiums will be recalculated based on the participant's age at the time of re-enrollment.
Re-Enrollment Credit & Penalty Credit toward the five-year vesting requirement will be given to participants who re-enroll within five years of letting coverage lapse. Participants who re-enroll after a five-year lapse will not receive credit for previous coverage, and will be subject to an additional premium penalty.
Read more about group long-term care insurance here. 8
Important Considerations
In light of the approaching implementation of the CLASS program, now is an excellent time to learn about long-term care insurance options available to you. When deciding which route is the best fit for your company and employees, you are advised to take the following aspects of the CLASS program into consideration.
Benefit Levels The CLASS program is expected to pay benefits between $50 and $75 a day. The amount will increase each year based on a consumer price index. However, the government may also reduce program benefits to ensure financial viability of the program. Unfortunately, CLASS benefits fall short when compared to the actual cost of care. For instance, the price of a single day in a nursing home averages $229 nationwide. Although a case can be made that CLASS was not designed to cover the full cost of facility care, it can also be argued that even home health care - which averages $21 an hour - will quickly eat up the daily benefits paid through CLASS.3
National average median rates for long term care:
Private long-term care insurance policyholders, on the other hand, are able to select benefit levels that more closely reflect the actual cost of services. Most private long-term care plans come with daily benefits of $100 to $400. Policyholders can also elect to add inflation protection, with options including an unlimited five-percent compounding factor. Furthermore, an insurance company cannot reduce benefits after policy issuance.
Premium Rates One of the most highly anticipated pieces of information yet to be released about the CLASS program is the premium rates. The Secretary of Health and Human Services is expected to have rates formulated by October 1, 2012. In the meantime, there are projections that monthly premiums will range from $120 to $240 for most enrollees. Monthly rates starting at $5 will be available to individuals whose income falls below federal poverty level and to employees who are full-time students ages 18-22. Premiums will be based on the enrollee's age, and rates are designed to remain level. However, premiums may be increased annually for both current and new participants to keep the program financially sound. Participants age 65 and above who have paid premiums for 20 years and are no longer actively employed are exempt from rate increases. Some may be surprised to discover that healthy employees may actually find lower premiums in the private long-term care insurance market, which also offers more benefit-rich coverage.
5-Year Vesting Requirement The CLASS program requires participants to complete a five-year vesting period before they may become eligible for benefits. Enrollees are also required to be working for at least three of the five years. The obvious concern with the program's vesting requirement is the possibility that a participant will need care before completing the lengthy vesting period. In that scenario, the person would be ineligible for benefits.
9
10
In lieu of a vesting period, most private long-term care insurance policies include a waiting period which policyholders need to satisfy only once before collecting benefits. Waiting periods, also called elimination periods, typically range from 30 to 90 days.
Actuaries inside and outside of government are concerned about the risk of adverse selection - the attraction of a disproportionate number of high-risk participants, which can lead to higher costs and premiums - and the resulting threat to the viability of the program.
Dependent Coverage
Long-Term Viability
CLASS coverage is restricted to the participating company's employees, and is not extended to members of the employee's family.
The CLASS program must be entirely self-sustaining financially through voluntary employee enrollments and subsequent premiums paid by program enrollees. The legislation requires the program be solvent over a 75-year period with reports on the program's solvency due annually beginning in 2014.
With this absence in coverage, CLASS fails to address one of the main reasons employers choose to include long-term care insurance in their employee benefit offerings: to reduce employee caregiving and the associated losses in productivity. Family members are typically eligible to enroll in private long-term care insurance policies at discounted rates under the employee's plan. This option alleviates the burdens of family caregiving and allows employees to maintain productivity on the job.
Underwriting The CLASS program offers guaranteed issue coverage based on a liberal "actively at work" requirement; enrollees are not asked any health questions. Whereas, private long-term care insurance carriers review the health of applicants in the underwriting process, enabling the insurer to determine eligibility for coverage and charge premiums that are in line with the risk. Simplified underwriting may be available with employer groups.
There is great concern about the long-term viability of the CLASS program. The uncertainty stems from factors including the high risk of adverse selection and the difficulty in predicting participation rates. If the program is determined to be actuarially insolvent after implementation, administrators must take action to bring it into a solvent state, or end the program altogether. Long-term care insurance policies in the private market are guaranteed renewable, meaning the company cannot cancel coverage. Policy benefits and rates, as well as a company's actuarial soundness are also regulated on a state level.
The absence of medical underwriting in the CLASS program is expected to be particularly attractive to people with pre-existing health issues who might not otherwise qualify for coverage. This same provision, however, is extremely worrisome to insurance industry experts.
http://www.ltcfp.com 11
http://www.ltcfp.com 12
Conclusion The CLASS Act, the government's most recent reminder of the need for long term care planning, is greatly increasing the attention given to the value of long-term care insurance. As a result, long-term care insurance is becoming an even more vital component of employee benefit packages to recruit, reward and retain talented workers. While CLASS will be of value to employees with health conditions that would prohibit them from qualifying for traditional long-term care insurance, the majority of individuals will find private market coverage to be a superior alternative. Long-term care insurance sold through the private market offers benefit-rich policies that provide adequate coverage for costly longterm care expenses. And when compared to CLASS, premiums are more affordable in the private sector. Furthermore, one of the most advantageous provisions in private long term care insurance for employers is the option for employees' family members to also purchase discounted coverage. Rates are based on applicant age so the younger one is at enrollment, the lower their rates will always be when compared to enrolling at a later date. There are many things known about the CLASS Act program, still others yet to be determined - but enough to know that the private market will be a better alternative for the healthy and the CLASS may be a good alternative for those who are not. It’s never too early to be prepared. We invite you to learn more about what private long-term care insurance can do to provide peace of mind today and financial security tomorrow, for you, your employees and your company.
1. US Department of Health and Human Services, National Clearing House for Long Term Care Information, October 2008 2. MetLife Care Giving Cost Study: Productivity Loss to US Business, 2006 3. Unum Long Term Care Cost Survey, 2008
13