On Oct. 14, the Community Living Assistance Services and Supports program—also known as CLASS—was indefinitely suspended after the Department of Health and Human Services determined it couldn’t make the federal long-term care insurance program financially sustainable.
While many inside the Beltway saw the announcement as an opportunity to score political points, I view it as a milestone that spotlights not only the importance of LTC planning, but also the need for individuals and employers to embrace their own responsibility for addressing this need.
What would have been
CLASS was a component of the Obama health reform plan that sought to create an actuarially sound, voluntary LTC insurance program. As designed, the plan would have required five years of payments before eligibility for benefits began. Those benefits would have been modest—about $50 a day. According to the 2011 Genworth Cost of Care Survey, that’s enough to cover about 3 hours of home health aide services, but falls well short of the average $193 daily cost for a semi-private room in a nursing home.
Had CLASS continued, employers would have faced a big decision: whether or not to opt into the program on behalf of their employees. Had they done so, they’d have been charged with managing the payroll deduction of plan premiums—and explaining to employees that, unless they individually opt out, they’d be automatically enrolled in the plan.
None of that will be happening anytime soon. After months of intense actuarial work, Department of Health and Human Services Secretary Kathleen Sebelius formally informed the Congress that, “despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time.”
While CLASS has been suspended, the immense national challenge of LTC financing remains. “The challenge that CLASS was created to address is not going away,” said Sebelius in her letter to Congress. “By 2020, we know that an estimated 15 million Americans will need some kind of LTC and fewer than three percent have a LTC policy.”
More and more employers are rising to that challenge. Today, approximately half of Fortune 500 employers provide voluntary group LTC protection, and adoption of group LTC plans soared 892 percent between 1995 and 2008 as employers recognize three key advantages:
- A more compelling suite of benefits. Providing an LTC option sends a strong signal that an employer isn’t just concerned about an employee’s well-being today, but far into the future as well.
- Enhanced productivity. By addressing an important set of healthcare needs—and the management of those needs—LTC insurance can help reduce absenteeism and on-the-job distractions.
- Protection of retirement savings. LTC insurance is as much a retirement planning tool as it is a health planning tool: Planning for costly LTC contingencies can help employees and retirees avoid damaging drawdowns of their retirement accounts.
There are three primary ways for employers to offer LTC solutions to their workforces:
- 100 percent voluntary. With this arrangement, employees pay all of the plan premiums, but usually benefit through lower premiums and more relaxed underwriting when compared to individual LTC plans. Premiums may be paid via payroll deduction, list bill or direct bill.
- An employer base plan with buy-ups. Offering some base amount of company-paid coverage builds awareness of the LTC planning need, while the option for employees to purchase additional coverage gives them the flexibility to tailor their own protection. An employer base can accommodate premiums that amount to as little as $10 to $20 per month per employee.
- Executive carve-outs. This approach gives employers great latitude in choosing which employees will receive LTC insurance protection. It’s possible, for example, to restrict eligibility based on factors such as years of service, job classification or occupation—while still deducting the premiums. Meanwhile, benefits are tax-free and the coverage is fully portable.
Over the past generation, employer retirement benefits have evolved into a model that requires employees to take an increasingly active role in insuring their personal success. Moving forward, I foresee LTC planning following a similar course. For that vision to become a reality, however, it’s incumbent on employers to give employees access to tools that help them pursue the life of independence and security they’ve worked for.