The CLASS Act That Wasn't

The Class Act That Wasn’t

You may not have heard much about the CLASS Act, part of the new health care law package. But its too late, The Community Living Assistance Services and Support Act was scrapped by the government’s Health & Human Services agency before it started. It was a voluntary government-run plan providing nursing care benefits of around $50 - $90 in cash per day. 

The need for help with long term nursing care expenses is a growing problem in our aging population. Unfortunately, the CLASS Act as presented by our elected leaders was not the solution. The devil is always in the details, and the details didn’t add up to a self-sustaining plan, which   is one of the mandates of the law. Plus, the law required the administration to certify that CLASS would remain solvent for 75 years before it could be put into place. (Thank you). 

A voluntary and guarantee issue insurance plan providing long term benefits would eventually be subject to adverse selection. The young and healthy will be reluctant to pay in to the plan, which would be necessary to keep premiums down for older people. The guarantee issue provision will encourage disabled and ill individuals to enroll, thereby increasing the adverse selection effect. Premiums would have to increase to pay the benefits and at some point taxpayer subsidies would be required. The designers of the plan tried to address this problem by requiring you to be employed and pay through your employer. Premiums were to be paid for 5 years prior to eligibility to receive benefits. Premiums were estimated to be around $5 per month for students and wage earners below the poverty line, and between $126 and $150 per month for most. These premiums were to be paid initially by payroll deduction through your employer.

The law also states that the Act’s administrative expenses cannot exceed 3% of premiums taken in. I don’t know if a government agency can do or ever has done that. This is a particularly hard problem to solve, insurance companies consistently are raising premiums on older Long Term Care policies, and the pricing/benefits issue continues to be problematic. Although there is Medicaid in the U.S., and other governmental programs around world to deal with this problem, now is probably not the time to add this to our fiscal burden. 

Joe Arndt CLU, ChFC,  Pres.  Arndt & Associates 8124 Big Bend Blvd. St. Louis, MO  63119