Category Archives: Long-term care

How do we ensure long-term solvency for the CLASS program?

We blogged last week about a Congressional committee’s hearing on the CLASS Act.  In his testimony, Al Schmitz put forward several ideas for ensuring the solvency of the new federal long-term care (LTC) program:

On behalf of the Academy, I offer the following recommendations for modifying the CLASS program:

  • An actively-at-work definition with a minimum requirement of 20 to 30 hours of scheduled work or a comparable requirement;
  • Restrictions on the ability to opt out and subsequently opt in with the use of either a long second waiting period for benefits or an alternative underwriting mechanism(s);
  • The use of a benefit elimination period or duration limits;
  • Benefits that are paid on a reimbursement rather than cash basis;
  • An initial premium structure that provides for scheduled premium increases for active enrollees at either a consumer price index or alternative rate.

These modifications, along with an effective marketing effort, will improve the sustainability of this voluntary long-term care program. Without these modifications, the program is likely to be unsustainable.

For more on some of these solutions, check out this post and the related articles.

Congressional committee reviews CLASS Act

The U.S. House Energy and Commerce Subcommittee on Health today held a hearing regarding the CLASS Act, the federal long-term care program that we have blogged about before. Here is coverage of the hearing from Best’s:

While CLASS program is required to be actuarially sound over a 75-year period without taxpayer support, that will be difficult to achieve, said Allen J. Schmitz, a consulting actuary for Milliman testifying on behalf of the American Academy of Actuaries. With guaranteed issue and a waiting period that is too short, the voluntary program is at great risk for adverse selection, he said.

For more on adverse selection, click here. To see the full hearing, click here.

How can an annuity fund long-term care?

The Chicago Tribune poses, and answers, this question:

Q. My wife and I are 84 and considering a retirement home. I read about a provision in the Pension Protection Act that would allow long-term care costs to be paid tax-free through an annuity. We have an annuity with a surrender value of more than $300,000. What part of this could help us pay our monthly bill?– R.M.

A. First, you need to evaluate whether you would owe taxes on annuity withdrawals, said Montgomery Taylor, an accountant and financial planner in Santa Rosa, Calif.

If the value of your contract is down to basically what you put into it (all too common these days), you could owe no tax, and thus have no need for a tax break, Taylor said.

That said, the Pension Protection Act of 2006 did create a tax break for annuity owners that began this year. While you don’t get a break on direct long-term care costs, you can qualify for tax-free annuity withdrawals that are used to pay for long-term care insurance premiums. If you end up needing the insurance, your coverage could equal two to three times the value of the annuity policy, experts said.

Some hybrid annuity/long-term care products have been available in recent years, though several insurers are developing new products to take advantage of the provision, said Carl Friedrich, a principal with Milliman, an insurance industry consulting firm.

Annuity/LTC hybrids gain traction

A part of the healthcare reform bill, the CLASS Act, has attracted a lot of attention, though there’s already significant change afoot in long-term care (LTC) as an employee benefit. Employee Benefits News picks up on the story:

Before the Community Living Assistance Services and Supports Act folded into landmark health care reform legislation raised public consciousness of long-term care insurance, LTC got a shot in the arm with provisions of the Pension Protection Act (PPA) that took effect this year.

So-called combo long-term care products, which blend LTC with annuities and life insurance, could be popularized under changes to the PPA because of clearer pricing. Carl Friedrich, a consulting actuary and principal for Milliman, also has noted that the LTC portion of a combo plan often costs 35% to 50% of standalone coverage.