Recently in long-term care insurance Category

In an important speech for those interested in the future of the CLASS Act, federal Department of Health and Human Services Secretary Kathleen Sebelius said today that the program must be self-supporting but conceded that, as designed, it may not meet that goal. 

"The program must be able to pay for benefits over the long-term with the premiums it takes in,' she told the Kaiser Family Foundation. "No taxpayer dollars will be used to pay for CLASS benefits.This is non-negotiable."

At the same time, however, Sebelius said she was open to major changes to the program and acknowledged that the national, voluntary long-term care insurance system that was included in the 2010 health reform law "is not perfect." And, in an apparent nod to critics, said "it would be irresponsible to ignore the concerns about the CLASS program's long-term sustainability in its current form."

To respond to those fears, she suggested that HHS has broad authority to restructure key provisions of the law. Sebelius said that, besides sustainability, CLASS contains only two other "key principles." The first is that consumers must have the ability to direct their own services--a reference to CLASS' cash benefit. The other is that there should be no traditional underwriting for health status such as is included in private long-term care policies.

However, she explicitly opened the door to other highly controversial changes to the law. These include tightening its "at work" requirement, changing its premium structure, and assisting employers who offer CLASS benefits to their workers. 

The biggest change would make it tougher for some people with disabilities to enroll in the program. The law allows anyone 18 and older to sign up for CLASS as long as they earn just $1,100 a year, which makes it possible for many working people with disabilities to buy coverage. This is an extremely important change for them, but such a flexible standard has been sharply criticized by industry actuaries.

The problem is that this design may mean that those buying CLASS insurance will be more likely than average to claim benefits under the program. If that happens, the government will have to increase premiums to pay those claims which in turn will discourage healthy consumers from buying coverage. This will eventually lead to a "death spiral" that will destroy the program.

Sebelius said her office is reviewing that at-work requirement, although it is unclear how much flexibility she has to change it without an amendment to the law.

Other changes she is considering include:

Replacing a flat premium with one that increases annually with inflation. This postive change would allow for relatively low initial premiums, especially for young buyers.

Imposing anti-gaming rules. These would prevent consumers from going in-and-out of coverage during their lives without paying penalties.

Easing the burden on employers that offer CLASS insurance. This could be another key change. The law automatically enrolls workers in CLASS, but only if they get coverage through their job. Currently, however, the law includes no incentives for employers to participate.

Creating an aggressive marketing campaign for long-term care insurance. This change could attract broad insurance industry support. But coming up with the funding will be a huge challenge, especially given severe budget pressures and the strong opposition to CLASS from congressional Republicans.

Tailoring benefits to individual needs. The law appears to require Sebelius to approve only a single policy. But today she suggsted she might have the flexibility to approve multiple coverage options. This could be another key change.

Sebelius' speech today was a major acknowledgement that CLASS as currently designed is in deep trouble--both politically and as an insurance program. By recognizing the flaws that some of us have been noting for more than a year, she has taken the first steps towards making CLASS successful. The question now is whether it is not too late given the broad opposition to the program that has been building for months on Capitol Hill. 

Senior Obama Administration official Richard Frank says he is "cautiously optimistic" that the Department of Health and Human Services (HHS) can build a viable government sponsored long-term care insurance program under the CLASS Act. CLASS is a national, voluntary long-term care insurance system that was included in the 2010 health reform law.

Frank, a highly respected professor of health policy at Harvard Medical School, is Deputy Assistant Secretary for Policy and Evaluation at HHS. He told a group of long-term care industry representatives, researchers, and elder advocates today that while HHS faces major challenges, the agency can design a workable insurance program under the controversial law, 

Although a deficit reduction commission appointed by Obama recommended last week that CLASS be either repealed or reformed, Frank says he is squarely in the reform camp. And, while he acknowledges it will be a major challenge to create policies that consumers will be willing to buy, he thinks that goal can be reached without changes to the law. CLASS, Richard says, "is designed to change the terms under which we buy and sell long-term supports and services in this country." And, he adds, "it has a great deal of potential."

I agree. But I worry that a real insurance market may never develop under CLASS. The problems are many: CLASS is a voluntary program for both consumers and their employers. The government is barred from refusing coverage to anyone over 18 who works even part-time, no matter what their health status. Anyone who makes more than $1,100 a year is eligible to participate, and low-income workers may buy insurance for only $5-per-month. This arrangement will encourage many working people with disabilities to buy, but also threatens to drive premiums so high that others will be discouraged from purchasing.

Richard acknowledges the problem, and says he assumes initial participation rates will be quite low--likely well below 10 percent. He also says HHS is wrestling with a number of technical issues, such as how to encourage employers to participate in the program, how CLASS will work for those who are also using home care services under Medicaid, how to manage the risk of rapidly-rising long-term care costs, and how to deermine eligibility, especially for those with mental illness. The mentally ill are not usually covered by long-term care insurance but some will be eligible for CLASS benefits.

Making CLASS work will be a huge challenge, but at least today, two years before HHS is due to begin selling policies, Frank still thinks the agency can pull it off. I hope he's right.    

Erskine Bowles and Alan Simpson, the co-chairs of President Obama's deficit reduction commission, have called the CLASS Act "unsustainable" and are proposing that it be either reformed or repealed. They say the national voluntary long-term care insurance program passed as part of this year's health reform law "is viewed by many experts as financially unsound."

The first version of the Bowles-Simpson plan, released last month, was silent about CLASS although sources were warning it was on the panel's radar screen. However, in an effort to win votes from members who have been skeptical about CLASS since it was enacted, the co-chairs added their call to repeal or reform the law in a way that is "credibly sustainable over the long-term."

Unfortunately, the co-chairs dodged the question of how they'd do that. And that was a serious mistake. 

As regular readers of this blog know, I support the concept of CLASS but have argued since before it passed that it needs to be redesigned. The commission chairs provide no clues about how they would do that. Do they support a mandatory program? Would they make technical changes to try to make the insurance more attractive to buyers in a voluntary system? Do they really want to repeal the whole thing?

It is unlikely that the Bowles and Simpson deficit plan will even win the support of their own commission when the panel votes later this week. And if it did, it is hard to imagine Congress ever approving it. However, it is an indication of the mood of Washington these days, and of the discomfort over CLASS in the context of massive ongoing budget deficits. Most dangerous for the program, should Congress ever tackle the deficit, it is hard to see where CLASS would find the support it needed to survive an assault.  

It is a tough time to try to sell long-term care insurance.  The private market was stunned on Nov. 11 when MetLife, one of the nation's biggest carriers with insurance on 600,000 lives, announced it would stop selling new policies. At the same time, surveys by two of the nation's most respected long-term care researchers suggest why it will continue to be very difficult both for private companies to sell coverage and for the federal government to succeed in its new national long-term care insurance program--the CLASS Act.

CLASS is the national, voluntary, government-sponsored long-term care insurance program that was passed as part of health reform. It would provide people who need personal assistance with an average minimum daily cash benefit of $50 for life.  

At a conference on Tuesday, Josh Weiner of the research firm RTI International reported that a new survey of potential consumers showed very little interest in a CLASS-like product. The survey, taken in Hawaii last summer, found that 60 percent of respondents said they favored the public insurance program. But only one-fifth thought they'd buy coverage. A quarter said they would not, and more than half didn't know--not surprising for a product that was so new and unfamiliar.

But Josh also asked how much people were willing to pay for coverage. And those responses were far more ominous for the future of the program. Twenty-three percent said they would not enroll. Nearly 60 percent said they'd pay no more than $40 a month, and 17 percent said they'd pay no more than $80. Only 1.5 percent said they'd pay between $80 and $120, and the same number would be willing to spend more than $120.

This is very bad news since most independent analysts figure CLASS premiums will average at least $120-a-month.  It does not mean that only 1.5 percent of potential buyers will purchase, but it shows what a tough selling job the government will have to convince people to buy--a marketing campaign that private insurance has so far failed to pull off for its own long-term care products.

Btw, Josh also asked what people thought of mandating private long-term care insurance--an idea I strongly support. One quarter agreed, 20 percent didn't know, and almost 60 percent opposed the idea. Honestly, I thought it would be worse.

The second survey was done by Marc Cohen of the consulting firm Lifeplans on behalf of the insurance industry. This national survey asked about long-term care insurance in general, not just CLASS

While Marc found that price matters, he also learned that attitudes may be just as important. He concluded that buyers shared several key attributes that non-buyers did not. They were more likely to believe they'd need care at some point in their lives, had a much better idea what it would cost, realized they or their family would have to pay these costs, and were "planners" who felt the need to prepare for future care needs.  His conclusion: People are willing to buy, but only if they perceive value.

There is lots of quiet speculation in Washington about the fate of the CLASS Act in the wake of the huge Republican 2010 election day victory. Will CLASS be repealed? Will it be changed in any major way?

My best guess is that CLASS--the national voluntary long-term care insurance program passed as part of the 2010 health reform law--will neither be repealed nor fundamentally changed, despite the GOP threat to roll back the entire health law. 

That is not to say conservatives won't try. Activists at the Heritage Foundation and elsewhere have called for repeal of CLASS, which they fear will turn into a new unfunded entitlement program. Sen. Lindsey Graham (R-S.C.) has already introduced a bill to repeal the law.

Worse for CLASS backers, the law has no real advocate in Congress. No Democrat has stepped up to take ownership of the idea since its primary sponsor, the late Sen. Edward Kennedy, died last year. Indeed, about a half-dozen Democratic senators opposed the provision when it was added to the health law.

There is a good chance the soon-to-be GOP-controled House will pass a repeal bill early next year. It would fit with the Republican vow to wipe out the entire health law and their special dislike of federal long-term care insurance. But even with strengthened GOP ranks in the Senate and the support of those Democrats, CLASS opponents remain far short of the 60 votes they'd need to repeal the law. And they''d need even more-- 67 votes-- to override a veto by President Obama. As one insurance lobbyist told me today, "CLASS isn't going to disappear."

Similarly, there is little chance Congress will gut the bill. Unfortunately, the new political environment also makes it extremely unlikely that Congress will improve those elements of CLASS that need to be fixed. As I have written before, there is a real question about how many people will buy CLASS policies, which are likely to cost an average of $100 or more per month.

Some changes in premium design and eligibility could help bring those premiums down. But given the hostility to the law on Capitol Hill, there is no chance the White House will ask Congress to make repairs. Those backers of CLASS who pushed to pass the law, flaws and all, in the expectation that they could fix it down the road are now stuck with the measure, flaws and all.       

What will our growing ability to identify Alzheimer's Disease years before a patient shows full symptoms mean for the U.S. system of voluntary long-term care insurance?

The New York Times reported this week that a new test using spinal fluid can accurately identify Alzheimer's a decade before it becomes full-blown. With some patient groups, the technique--which is already commercially available--can identify future onset of the disease with 100 percent accuracy. The Times also reports that separate PET scan imagery is also being used on an experimental basis to detect early signs of the disease.

This diagnostic work is great news for medicine. These tests may become impotant steps toward eventual treatment and possible prevention of the disease. But they also promise to completely shake up our model of long-term care insurance. This is a very big deal.

To understand why, keep in mind that nearly half of long-term care insurance claims costs are for those with dementia. While Alzheimer's is only one of many memory loss diseases, it is by far the most common. 

Second. rememember how insurance works. We buy it to protect against the cost of a future bad event. I know that some people will contract Alzheimer's, but don't know if I will. So I can use the insurance to hedge against that risk. I may never file a claim, while others may end up spending far more for care than they ever pay in premiums. So insurance companies use my premiums (and the money they make investing those premiums) to pay the claims of those who do.    

Now imagine if people can learn 10 years before full onset of Alzheimer's that they are highly likely to suffer from it. Imagine, moreover, that a future genetic test can tell them decades in  advance, perhaps while they are still in the 20s or 30s. The result is that those who test positive will flock to buy insurance, dramatically increasing the amount of money carriers will have to pay in claims. They in turn will raise rates to reflect these higher costs. 

Some states have already barred insurance companies from getting results of diagnostic tests. But that will just drive up premium prices for all buyers. Knowing that the tests are widely available, the companies will simply assume that more buyers are at greater risk for getting Alzheimer's and raise rates accordingly.

Btw, the new national long-term care insurance program, the CLASS Act, will face exactly the same problem since it is voluntary. In fact, it may bear an ever greater burden. If private insurance more tightly underwrites to screen out those susceptible to Alzheimer's, those unable to buy in the market will turn to government insurance, which cannot reject buyers based on health. And that will drive up CLASS premiums.