What you need to know about the CLASS Act

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act, which includes the Community Living Assistance Services and Supports Act, or CLASS Act, whose intent is to provide a taxpayer-funded benefit for working Americans for long-term care needs – rendered, it’s hoped, in a home or community environment.Long-term care insurance is not to be confused with disability insurance, the sole purpose of which is to replace earned income. Many people have a lot to say about the CLASS Act including analysis of its financial viability and other points worthy of deeper review, and I will touch upon some of them.The CLASS Act itself is a work in progress, and that is reflected in the answers to many questions posed by many parties as simply, “We don’t know yet.”Furthermore, much information related to CLASS is subject to interpretation because the authors and designers of the act have not made clear exactly what the program will look like. This includes interpretation by attorneys, underwriters, actuaries, regulators, associations such as AARP, insurance brokers and insurance companies.The intent of the CLASS Act is admirable. It is designed to help people with functional limitations to stay at home vs. moving to a facility, to build a supportive infrastructure, to reverse the bias towards institutional services, to reduce the stress on family members as caregivers, and to encourage people to start insuring at younger ages.Let’s look at the CLASS Act by breaking it into several general areas (note that all of the information presented here can change at any time, as we are dealing with what I can only describe as projections):Eligible individuals are those who receive wages or income that are subject to Social Security tax, are 18 or older, are actively at work, are not confined to a penal institution or correctional facility, are not a patient in a hospital or nursing facility, or residing in an institution for “mental disease” and receiving Medicaid. If you are self-employed, you must be paying self-employment taxes.Benefits are not subject to any medical underwriting. This type of enrollment is called “guaranteed issue.”Ironically, among those not eligible are retired people or those not working due to a disability, and family members who are eligible to enroll in private-sector, long-term care insurance are not eligible to enroll under an employer-sponsored CLASS plan.Cost of participationAs for cost, “final” premiums have not been determined. Projections range from $150 to $240 per month per person. Students and low-income participants will likely pay $5 a month.Premiums must be paid by participants for a minimum of five years before becoming eligible for any benefits, and they must be working and earning wages for three of those five years. This is often referred to as the vesting period.Once the program experiences participation, benefits will not become payable due to the vesting requirement until at least 2018.Premiums will be “level,” unless the Department of Health and Human Services deems the premiums paid are insufficient. “Level” means that the intent is not to raise premiums, although as it stands now, rates can be increased annually. There will be no increases for people who are over age 65, are unemployed and have paid premiums for 20 years.If you terminate your coverage for 90 days or more, your cost is then recalculated, and a penalty will be charged to those who re-enroll if they lapse coverage for five years or more.The cost of participation will be age-based. Premiums will be paid with after-tax dollars and benefits will be tax-free because of
this.Hans Hug, owner of Exeter-based LTC Insurance Group, an agency specializing in long-term care insurance, can be reached at 888-758-8949 or hhug@apache1.net This article is the first of two parts.