Health Reform and the CLASS Act: Threat or Opportunity?

March 23 was the one year anniversary of President Obama signing into law the health care reform bill, which includes the Community Living Assistance Services and Supports (CLASS) provisions.  Many of the details of the CLASS provisions are not yet defined and will be developed through regulation, but as with all other aspects of this industry altering legislation, nothing will ever be the same – both for consumers of health care and the brokers who serve them.

Most brokers I speak with are very concerned about most of the health care reform in its present form. Some of the major concerns I hear fall into the following buckets:

Reduction in income. Most health brokers believe that their income will be adversely affected.

Client Relationships may be threatened. Loyalty is becoming a very rare trait amongst even our most well entrenched clients and that could be shaken even further by an upheaval in policy design/pricing.

Value proposition could be diminished.  As a consolidation of plans occurs, understanding the differences between one broker and another may become more difficult.

All of these are the perceived threats of health care reform which will roll out over the course of the next two years.

Another school of thought lies around the opportunities the reform act presents, and we will focus here on the CLASS Act as a particularly effective way for health brokers to combat all three of the concerns mentioned above.

First, a bit of background.

Why does health care reform include any provisions for long-term care? After all, no major medical plan – not even Medicare – presently cover LTC costs at all.

Let’s look at why long-term care cost are so alarming and need to be addressed now with all employers and their staff:

Of every 100 people over 65 years of age, 43% will need long term care..
-Technical Report 1-01, Scripps Gerontology Center, February 2001

40% of the people receiving long term care are working adults between the ages of 18 and 64.

-(GAO/HEHS-95-109 long term Care Issues, p. 7).

When you reach age 65, you have a 40% lifetime chance of entering a nursing home, and a 10% risk that you will stay there at least five years
- (U.S. Department of Health and Human Services).

“The average length of stay in a nursing home (current resident) is 892 days” (The National Nursing Home Survey).

In some parts of the country, it can cost over $100,000 a year.  If we assume that nursing home costs will continue to reflect recent trends, by the year 2021, the average rate will have risen to about $480 a day, or $175,200 annually.

As a result of these alarming statistics, Senator Ted Kennedy made it his mission to include some benefit – albeit small and controversial – in the final health reform legislation.

What are the details of the coverage that would be provided?

Most of the terms of the new CLASS program that passed as part of the Patient Protection and Affordable Care Act will be developed by the Department of Health and Human Services over the next few years. Certain terms are set in statute, including the following:

Enrollees will:

• pay a monthly premium, through payroll deduction, that has yet to be determined, but most recent
• estimates indicate that the average premium will be $180-$240/month; that premium could be increased yearly to ensure that the CLASS fund is actuarially sound.
• be covered on a guaranteed-issue basis.
• be eligible for benefits for their long-term care needs after paying premiums for the first 60 months of coverage (i.e., a 5-year waiting period) and have worked at least three of those five years.
• receive a lifetime cash benefit after meeting benefit eligibility criteria, based on the degree of impairment, which is expected to average about $75/day or more than $27,000 per year and is payable as long as the claimant remains disabled.

Enrollees will be offered coverage through their employers and will be automatically covered unless they opt out. They can opt back in at a later time. Self-employed people or those whose employers do not offer the benefit will also be able to join the CLASS program through a government payment mechanism.

Bad Math

This part of health care reform is one of the most controversial – in large part because it creates so many unanswered questions. What are the premiums, how are they set and where do they go once collected are but a few of the more pressing queries. Douglas Holtz-Eakin, who was the director of the Congressional Budget Office from 2003 to 2005, wrote concerning this issue;

"Consider, the fate of the $70 billion in premiums expected to be raised in the first 10 years for the legislation's new long-term health care insurance program. This money is counted as deficit reduction, but the benefits it is intended to finance are assumed not to materialize in the first 10 years, so they appear nowhere in the cost of the legislation."

"Removing the unrealistic annual Medicare savings ($463 billion) and the stolen annual revenues from Social Security and long-term care insurance ($123 billion), and adding in the annual spending that so far is not accounted for ($114 billion) quickly generates additional deficits of $562 billion in the first 10 years. And the nation would be on the hook for two more entitlement programs rapidly expanding as far as the eye can see."

Why should Benefit Brokers Care?

First off, because they have to now. CLASS is not "voluntary." Every worker is involuntarily and automatically opted into the program. Each employee or self-employed person must willfully opt out to avoid the program's large "premiums" that will otherwise accrue by default.

Second, CLASS is not "insurance" by its true definition. Insurance is for healthy people who want to prepare responsibly for the relatively small possibility they may become disabled or chronically ill. CLASS is in essence a “pre-payment” of care subsidized by the insurable for the benefit of the uninsurable.

As a result of all these problems and concerns, why would an employer offer CLASS when a voluntary offering of true long-term care insurance would make so much more sense for the vast majority of his/her employees?

The answer: not many. Unfortunately, most benefit brokers are woefully uneducated on both CLASS and the multi-life offerings in the market. Therefore, they will not be able to position private sector options well when the employers start calling.  But, with education comes opportunity. Employers need guidance. Brokers need clients. LTC insurance specialists bridge the gap and can accomplish the goals each party has throughout this turbulent period.

The Best Defense…

The average broker in America today still sells—and will continue to sell—one or two LTCi policies a year. Why? Simply put, they do not see it as their role with employers. As a result, they will never focus on comprehensive long-term care planning.

So, how can the important subject of long-term care planning be addressed professionally and ethically with the millions of at-risk, actively working baby boomers? The only sensible and effective approach is through strategic partnering.

Most agents who have been successful at providing LTC insurance have focused solely on this complex product and the emotionally charged sales process that accompanies it. They are never a threat or a competitor to benefit brokers because LTCi is all they provide.

The CLASS Act is exactly what has been needed to crystallize attention by employers, LTCi specialists and benefit brokers on this voluntary benefit.

• LTC insurance specialists need access to boomers where they work.
• Advisors need to fulfill fiduciary responsibility and inform their corporate clients of the severe limitations of CLASS.

These two disciplines perfectly support one another. The key is bringing them together in a way that benefits all parties involved.

The importance of LTC insurance will continue to grow, as will the options on how to design and underwrite coverage. Therefore, it is in the best interests of all parties—benefit brokers, LTC insurance specialists and their clients—to develop trusting and mutually beneficial partnerships. This model will in large part transform the marketing of LTC insurance throughout the years ahead.

The How-to’s of Partnering with LTCi Specialists

Broker partnering is a challenging process – much more art than science. It must start with the realization by the broker that they need to work collaboratively to support their clients in the brave new world of health care reform. Once that fact has been accepted, the first step is to locate a professional and ethical long-term care insurance specialist.

The best method for finding a specialist to work with is obviously word of mouth/professional networking. However, locating them can also start with a Google search in your area. One organization that is national with trained worksite specialist is LTCFP. Another, ACSIA, can also be identified on the web.

When searching, designations can be helpful as well. The two most common are CLTC and LTCP. Of the two, CLTC is commonly accepted as the industry standard.

Attend NAIFA and NAHU meetings. Many of the leading LTC specialists are involved on a local level in these organizations.

Questions to Ask When Interviewing Specialists

How long have you been in the field? Look for at least 5 years. If they were previously affiliated with a captive or career shop, that is a benefit because they received significant training and support.

What businesses/organizations have you worked with? Experience at the worksite using simplified underwriting and a 60 day enrollment period are important.

What carriers do you work with? Pick an agent who has appointments with many large, reputable carriers like Prudential, Mutual of Omaha and Transamerica. Captive agents are not effective in the worksite since “one size does NOT fit all” in this marketplace. Ask if the specialist is compensated identically carrier to carrier. This obviously avoids conflict of interest.

What other benefit brokers do you partner with? You might as well find out about what your competition is up to.

Maximizing the Relationship: Keeping it Productive – and Profitable
Here are a few tips to help set appropriate expectations and develop long-term, mutually beneficial relationships that proactively address the issue of LTC planning with your client base:

1.    Commit to addressing LTC – with all clients. The most common reason why benefit broker/LTC specialist partnerships fail is lack of focus. Both parties get excited and a few introductions are made, then things fade to black. This is avoided by creating a marketing plan that both the benefit broker and the specialist document and sign off on. The most important element is consistency. Speaking with clients every week about LTC and a voluntary offering or carve out is essential. This proactive approach repositions the broker in the mind of the employer and he/she is seen as a valuable resource on health care reform – and the welfare of the employees.

2.    Don’t get greedy. Any specialist worth his/her salt will provide all the following on each worksite enrollment:

• Vet carriers
• Develop proposals
• Implementation calls with carrier
• Worksite case preparation
• Enroller management if necessary
• Proposal development and presentation
• Enrollment presentations – on location/webinars
• one-on-one meetings with all interested employees
• Application scrubbing/processing
• List bill preparation and reconciliation
• Policy delivery
• Ongoing customer service on active cases

As a result, the broker will earn a percentage of the commission, but generate significantly more income off of LTCi than at any time in the past. The adage “A small percentage of a lot beats 100% of nothing” truly applies in this scenario.

3.    Re-Brand your image in community. The brokers who truly leverage their relationship with LTCi specialists take a proactive approach to addressing this benefit – and the concerns most employees have surrounding it. That is completely different from the majority of benefit brokers and as a result, provides real opportunity to differentiate their services in a highly competitive market. Incorporate CLASS into many discussions, include some aspect of it in advertising/marketing pieces.

LTC Education at the worksite will cut stress, improve productivity – and solidify your relationship with clients who are confused about this issue.

CLASS Act forces an acceptance of long-term care planning. Those brokers who view this as an opportunity by partnering with LTCi specialists will “ride the wave” of government mandated health reform and be viewed as a resource rather than a “bearer of bad news”.

About the Author

Todd Grove, LTCP, CLTC is a founding partner of LTC Financial Partners and has specialized in this field for 20 years. Some of the publications he has contributed to are the New York Times, Senior Market advisor, National Underwriter Magazine, and the Portland Press Herald. He is a member of the Estate Planning Council of Maine and Past President of the Maine Employee Benefits Council. He can be reached in Portland at 207-772-5793 or todd.grove@ltcfp.net