Watch Your Wallet... This Little-Known Facet of the Healthcare Bill May Cost You $240 Per Month

Watch Your Wallet... This Little-Known Facet of the Healthcare Bill May Cost You $240 Per Month

by Bob Carlson, Advisory Panelist, The Oxford Club

When a 1,000-plus page piece of legislation gets passed into law - rushed or not - there are bound to be a few provisions that get overlooked. The latest healthcare law is no exception.

But if you're a working adult, there's one little-known facet you need to get acquainted with, STAT!

That's because the new healthcare law establishes a voluntary, long-term care assistance program called CLASS. All working adults will be automatically enrolled (via payroll deductions) beginning January 1, 2011. And it could cost you up to $240 per month.

The good news? You can easily opt out of this new program if you choose.

With the clock ticking, let me explain exactly what's going on so you can make an informed decision.

Dollars and Sense?

The CLASS program is set up to provide a useful benefit: At least $50 per day for people with functional limitations to hire help so they can remain in their current home. The benefit can also be used to purchase institutional care, such as residence in a nursing home.

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To receive the benefits, participants must first pay into the program for a minimum of five years. And premiums will remain fixed, unless deficits require an increase to continue funding benefits.

Sounds straightforward enough. But here's the rub...

The CLASS program is destined to be overloaded with participants who expect to need care immediately after the five-year waiting period ends.

Why? Because younger and healthier individuals probably won't participate. Same goes for people who already have private long-term care insurance (LTCI). In fact, it's estimated that only about 2% of those eligible will participate - half that compared to 4% for private LTCI.

As a result, the actuary for Medicare and Medicaid estimates the monthly premium will have to average around $240 to support the program. (Young and low-income participants are guaranteed a monthly premium of no more than $5.)

Forget the price tag, though. What's more troubling is the fact that the actuary projects once the initial five-year waiting period is over, the program will wind up paying out more in benefits than it receives in premiums by 2025.

In other words, there's a problem with the program's basic structure.

As the actuary says, "In general, voluntary, unsubsidized and non-underwritten insurance programs such as CLASS face a significant risk of failure as a result of adverse selection by participants... [T]here is a very serious risk that the problem of adverse selection will make the CLASS program unsustainable."

The Other Critical Questions Left to Be Answered

Even if we disregard the potential long-term funding issues, serious questions remain unanswered about the CLASS program. For example:

  • What will the actual benefit be? The law says a minimum of $50 per day. Will that change, and if so, how?

  • Will the benefit amount be indexed for inflation or an increase in healthcare costs?

  • Once a person chooses to participate, can he or she withdraw? If a person withdraws, is he or she eligible for future benefits or are all benefits lost?

  • Can a person re-enroll? What happens if a person becomes unemployed for non-health reasons or a self-employed person no longer earns enough to pay the premiums?

  • Premiums are fixed for five years unless deficits require an increase. But how will premium increases be determined? Is there a limit to increases or will premiums rise automatically to whatever level is necessary to pay estimated benefits?

  • What conditions must be met for a participant to qualify for benefits?

  • Since this is a new program, we also have no idea how well managed the program will be. How long will it take to process claims? What will the claims and appeals process involve?

In the end, given the potential funding issues and all the unanswered questions, I recommend you seriously compare the CLASS Program to a private LTCI policy from a well-established company with similar benefits. It could prove to be a safer investment.

But don't delay. Remember, you'll be automatically enrolled in the CLASS program come January 2011. Unless you opt-out.

Good investing,

Bob Carlson