A recent Investment News article looks at why long-term care (LTC) insurance can be a difficult sell. Among other things the article considers how health reform and specifically the CLASS Act may counter that trend and build awareness around long-term care:
Insurers are looking for ways to cash in on the Community Living Assistance Services and Supports Act, a part of the health care reform that creates a taxpayer-subsidized federal long-term-care program. The bare-bones benefit is to pay $50 per day. Companies may come out with a supplemental product to add to the federal benefit, but that product probably won’t be available for a couple of years, Mr. Schmitz noted.
The key to the ultimate success of the market depends on awareness on the part of clients and their advisers, Mr. Schmitz added.
“They have to be aware of LTC and have to want to plan for that risk,” he said. “It’s really a matter of education, getting more people to sell it and having the right public policy with respect to long-term care. There aren’t any simple answers.”
Long Term Care
Al Schmitz, CLASS Act
The Healthcare Economist has a new article out on the CLASS Act, the much-discussed long-term care (LTC) program established as part of the healthcare reform law. Here is an excerpt:
Milliman notes that currently, the CLASS act would be voluntary and would include guarantee issue (meaning that no one could be denied coverage). Separately, each of these provisions could allow for a sustainable long term care insurance product. The private sector currently uses the voluntary insurance model with underwriting. On the other hand, a guaranteed issue policy could work if purchasing LTC insurance was mandatory.
Together, however, these provisions may be problematic. “The voluntary aspect of the program allows low-risk individuals to never sign up for the program while the guaranteed issues enables some of the highest-risk individuals to join the program. This is a formula that is virtually certain to create financial instability in any insurance program unless there are other important provisions to control risk.”
The CLASS act does have some additional risk control provisions. To qualify for these benefits, one must pay into the plan for 5 years. Employers can decide to offer this LTC as a benefit and employers who choose to this option will have employees automatically enrolled with the premium deducted from each paycheck. Individuals would have to specifically ask to be removed from the program. Also, individuals who opt-out of the program will have to pay a higher premium if they decide to opt back in. The purpose of the vesting and opt-out penalties is to minimize adverse selection.
Long Term Care
Al Schmitz, CLASS Act, Long Term Care
Long-term care (LTC), which has rarely been front and center during the healthcare reform debate, is an important part of the new reform law. The specific provision, known as the CLASS Act, sets up a federal LTC program. NPR’s Julie Rovner examines the CLASS Act on today’s “Morning Edition.” Here is an excerpt:
The Department of Health and Human Services will determine the exact amount of premiums and benefits, and benefits will vary depending on the level of each person’s disability. But benefits will be cash amounts that will be no less than $50 per day.
While that won’t pay for a nursing home stay, which averaged more than $76,000 a year in 2008, “the benefit itself is not insignificant,” says Al Schmitz, a principal and consulting actuary with the health care consulting firm Milliman. “Somebody getting $1,500 a month, that can still help with getting some home care, getting community assistance,” he says.
But what does worry Schmitz is the possibility that the program might not live up to its promise of paying for itself. One worry is what actuaries like him call adverse selection.
“If the final premiums … end up being too high, I think that has the potential to scare away healthy individuals and really only attract less healthy,” he says. That would mean that there wouldn’t be enough healthy people to help spread the risk, and premiums would get even higher still.
You can listen to the full story here.
Long Term Care
Al Schmitz, CLASS Act
A new article in Investment News looks at long-term care premium increases. Here’s an excerpt:
The magnitude of the coming rate hikes will vary according to the type of coverage and the client’s experience in the pool, said Allen Schmitz, principal and consulting actuary at Milliman Inc.
Holders of richer LTC policies offering inflation protection or lifetime benefits could face higher rate hikes because more of them than expected are holding on to their policies and beginning to make claims, he said.
Read the full article here.
Cost, Long Term Care
Al Schmitz, LTC
A new AP article looks at the CLASS Act, the proposed voluntary federal long-term care program included in the healthcare reform bills. The CLASS Act is notable for borrowing automatic enrollment mechanisms that were installed into 401(k) plans as part of the Pension Protection Act (PPA).
But the CLASS Act could face adverse selection risk. Here is an excerpt from the AP article:
The program is meant to be self-supporting, without government subsidies. But some worry too few healthy people would enroll, leaving a group of enrollees at higher risk for needing long-term care _ and not enough money in the program to care for them.
“If premiums are $2,000 a year, some people are going to look at that and say, ‘Boy, that’s pretty steep. … I’ll worry about that risk some other time,’” says Allen Schmitz, an actuary with the independent consulting firm Milliman Inc.
Schmitz says automatic enrollment might help increase sign-ups, but Medicare’s chief actuary has predicted enrollment as low as 2 percent. That could require raising premiums, which would mean even fewer people would participate.
Given that, Schmitz says he sees “significant risk” that the program will fail. Rate increases will be more likely with the government program than in the private market, he says.
Read the full AP article here. Read Al Schmitz’s paper on the CLASS Act here.
Long Term Care, Reform
Al Schmitz, auto-enrollment, CLASS Act
We have blogged before about adverse selection risk in reform proposals. A proposal in the House and Senate healthcare reform bills, the CLASS Act, establishes a federal long-term care (LTC) program financed from participant premiums without any federal subsidy. The new LTC program is subject to guaranteed issue, and that, combined with its voluntary nature, subjects the CLASS Act to considerable adverse selection risk. This paper by Al Schmitz examines this risk while considering other likely consequences.
Long Term Care, Reform
Al Schmitz, CLASS Act, LTC
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