Health Reform's Long-Term Care Program Scrapped
On Oct. 14, 2011, the U.S. Department of Health and Human Services (HHS) announced in a letter to Congress that the 2010 health care reform law's program to provide long-term care insurance through the workplace was unworkable and would not be implemented.
The Community Living Assistance Services and Supports (CLASS) Act program, part of the Patient Protection and Affordable Care Act, was intended to provide a basic lifetime benefit of a least $50 a day in the event of illness or disability. Critics charged that the program, intended to be self-funded, was financially unsustainable without major government subsidies in addition to premium collections.
“At this point, we do not have a viable path forward to implement the CLASS Act,” said Kathy Greenlee, HHS assistant secretary for aging, in a released statement. The financial challenges facing the program were detailed in an October 2011 HHS report.
Republicans charged that the program's unraveling was just the first step in dismantling the entire health care reform law, while Democrats contended that the CLASS Act stood apart from the rest of the health care overhaul.
"The challenge that CLASS was created to address is not going away," Health and Human Services Secretary Kathleen Sebelius said in the letter to Congress. "By 2020, we know that an estimated 15 million Americans will need some kind of long-term care and fewer than 3 percent have a long-term care policy," she noted.
(Earlier updates and original article follow below.)
Update: CLASS Act Benefit Launch Not Expected Before Fall 2012
In March 2011, the federal Administration on Aging, a division of Health and Human Services (HHS), released a set of FAQs on the CLASS Act.
According to the FAQs, the Secretary of HHS has until October 1, 2012, to designate the CLASS benefit plan. Enrollment will not take place before the plan is announced, and no one will pay premiums until after they enroll. The FAQs also clarify that employers have the option to participate in the CLASS Act's automatic enrollment process for their employees but are not required to do so.
According to an alert from LTCShop.com,
HHS has until October 2012 to decide on:
• How enrollment will be handled.
• How the benefits will be tiered (depending on one’s level of disability).
• How much it will cost to participate in the program.
Once the details are released sometime in 2012, there will be a 90-day period for public comment. Then, unless Congress takes action to eliminate the program, enrollment will begin (either late 2012 or, more likely, in the first quarter of 2013.)
Since the CLASS Act requires that premiums be paid for five years before any benefits can be received, the earliest any claims can be made by enrollees would be sometime in 2018.
In July 2011, law firm Miller Johson issed an alert reporting that HHS had indicated the CLASS Act's long-term care insurance program was scheduled to begin operation in the fall of 2012. However, as of July 2011, HHS had just begun the process of designing the program’s administrative structure and had not yet published any official information regarding the program, including how to enroll, the benefits available, or the required premium.
Tucked into the landmark Patient Protection and Affordable Care Act signed into law by President Barack Obama on March 23, 2010, is the Community Living Assistance Services and Supports Act (CLASS Act), which creates a voluntary national social insurance program providing limited long-term-care (LTC) coverage through the workplace for employees. The government-run LTC option is intended to provide a baseline for extended care (see H.R. 3590, pages 710-729, for the statute text).
Under the CLASS Act program, all premium costs can be charged to employees.
Employers who chose to participate in the CLASS program wil be required to permit employees to make contributions by means of a payroll deduction that will begin a five-year vesting period for the CLASS Independence Benefit Plan, which is to be designated by the U.S. Department of Health and Human Services (HHS).
Employers either would create automatic enrollment procedures that allow workers to opt out, or allow workers to choose to enroll and pay premiums. Participants must pay monthly premiums for at least five years before they could receive benefits. Seniors (over age 65 years old) who have paid premiums for at least 20 years and are not actively employed are exempt from paying any premium increase.
Premium payments will be placed in a "Life Independence Account" on behalf of each eligible beneficiary and managed by the U.S. Department of Health and Human Services as a new insurance program.
As the CLASS program is developed, participating employers will need to coordinate with their payroll services providers to facilitate these deductions and contributions.
The Congressional Budget Office estimated that the monthly insurance premium would average about $123 in 2011. Premiums vary with age and will not increase once employees signed up, but they will increase for those signing up later.
After five years of paying into the program, enrollees who continue to pay monthly premiums would become eligible for assistance if they experience limitations in two or more so-called activities of daily living, including eating, bathing, dressing and taking medications. This assistance would take the form of a modest daily cash benefit, estimated at $50 per day for impaired enrollees living in the community, for services such as respite care, home care aides and accessible transportation, and up to $75 a day for enrollees who become institutionalized. These amounts would increase with inflation.
According to an article in the January 2010 issue of the journal Health Affairs, nursing home costs in the U.S. average more than $75,000 per person per year, or $250 per day.
"You do not have to do this on an auto enrollment basis, nor do you have to subsidize it," advises Ken Sperling, global health management consulting leader at Hewitt Associates. The CLASS Act, he explains, "is there because with long-term-care programs you pay premiums before benefits get paid out, and the CLASS Act raises $72 billion over the first 10 years. It's a very attractive revenue raiser to put into health care reform legislation."
CLASS Act: Next Steps
It is unclear when employers will be able to begin payroll deductions under the CLASS Act program.
By Jan. 1, 2012, HHS is to finalize eligibility requirements. By Oct. 1, 2012, plan design and development is to be completed (see box below).
• Voluntary, federal long-term care for employees.
• Participation is voluntary.
• 5-year vesting for participants.
• Age-related premiums (to be announced).
• $50-$75/day estimated benefit.
• Voluntary auto-enrollment.
• If participating in the program, update administrative and payroll systems and procedures.
• Remit enrollment information and premiums to trust fund.
• Communicate financial reality of long-term care and opportunity to employees.
Source: Hewitt Associates
CLASS Act: Process and Time Line
The CLASS ACT statutory effective date was Jan. 1, 2011. However, the Department of Health and Human Services will only start to hire actuaries and administrative personnel in January 2011.
Key dates that are known at this time follow below:
• By Jan. 1, 2012, HHS must establish an Eligibility Assessment System that finalizes eligibility requirements.
On a separate track:
• HHS Secretary is directed to create 3 alternative “actuarially sound” benefit designs.
• New "CLASS Independence Advisory Council“ reviews.
• After considering the Council’s recommendation and public comment, the HHS Secretary designates one of the designs as the final "CLASS Independence Benefit Plan."
• By Oct. 1, 2012, HHS Secretary to complete that process by publishing a final regulation.
Source: Davis & Harman LLP
"It's an important program, but it's not intended to replace private long-term-care insurance," says Kathy Bakich, senior vice president and national health compliance practice leader at the Segal Co., an HR consultancy. "If an employer already offers a long-term-care program, it should determine how this new benefit is going to interact with its current offering and then provide employees with that information. Employees can opt out, so the education challenge is the key."
"It's plausible that as employers educate their workforce on the CLASS Act deductible and the benefits it provides, they'll consider supplementing it with a private, more extensive LTC coverage option," says Jay Savan, a senior consultant at Towers Watson. "But it's also plausible that they could say, 'I was thinking about offering LTC coverage, but now that the CLASS Act provision is coming in I don't feel as compelled to provide even a voluntary LTC benefit to my employees.' I can see the logic going either way."
He adds, "the employers with whom we work that have seen an opportunity to enhance their benefits program through an LTC offering have done that for a while now. It's not as though they've been sitting on the fence waiting for the federal government to give them a green light. I don't know that the CLASS Act benefit is going to necessarily propel the rest into providing supplemental LTC coverage."
Long-term-care coverage, says Bakich, "is not an easy thing now for employees to figure out." But there is a growing need for employees to plan for their eventual needs. "This is a serious policy problem, people not having access to affordable long-term care, and with the shift in generations we see even less preparedness," she notes. "This is an area where people are just not planning."
Bakich advises, "If you can have discussions with employees and raise these issues, that's all to the good."
Long-Term Care as an Employee Benefit
Given the limited nature of the CLASS Act’s daily cash benefit, access to LTC insurance—typically an employee-paid voluntary benefit with premiums deducted through salary deferral—should remain a valued offering. According to the Society for Human Resource Management's (SHRM) 2009 Employee Benefits survey, access to LTC coverage was made available by 39 percent of responding SHRM members' organizations overall and by 46 percent of those with 500 or more employees.
Large employers often can provide access to LTC coverage under a group plan with lower premiums than employees would pay for individual policies, whereas small employers are more likely to negotiate with an insurer for at least a small discount on individual policies purchased by employees.
Unlike health insurance, premiums on LTC insurance provided through a section 125 cafeteria plan are not excludable from the employee’s taxable income. However, tax-excluded funds from an employee's health savings account (HSA) can be used to pay LTC premiums up to certain annual limits, even if the HSA is offered through a cafeteria plan. LTC premiums cannot, however, be reimbursed under a flexible spending account (FSA).
Stephen Miller is an online editor/manager for SHRM.
CLASS Act Q&As, SHRM Online Tools and Templates, April 2010
What Is Long-Term Care Insurance?, SHRM Online Tools and Templates, November 2009
Planning for the Future: Long-Term Care as an Employee Benefit, SHRM Online Benefits Discipline, October 2008
Long-Term Planning, HR Magazine, May 2007
Voluntary Employee Benefits Series: Long-Term Care Insurance, SHRM Research, December 2005
Long-Term Care: Why HR Should Care, SHRM Online Benefits Discipline, May 2004
The Class Act: An Overview of the Plan's Provisions, Limitations and Financial Viability, Unum Group, June 2010
The CLASS Act: What Employers Should Know, PricewaterhouseCoopers, April 2010
Preparing for Long-Term Care: The CLASS Act, Duke University's Sanford School of Public Policy, December 2009
The CLASS Act: A Flawed but Powerful Game-Changer for Long-Term Care, Kaiser Health News, November 2009
Heard of the CLASS Program? Well, You Will, Miller Johnson, July 2011
Analysis: The Community Living Assistance Services and Supports Act, Davis & Harman LLP, April 2010
Genworth 2010 Cost of Care Survey, Genworth Financial
Long-Term Care Insurance Tax-Deductibility Rules, American Association for Long-Term Care Insurance
SHRM Online Benefits Discipline
SHRM Online Health Care Reform web page