The way you sell long term care insurance will most certainly change if the Community Living Assistance Services and Supports (CLASS) Act is signed into law in its current form. The bill, which is currently included in both the House and Senate versions of health care reform legislation, creates a voluntary national long term care insurance program.
As a producer in the life and health field, the most important thing you can do is educate yourself on the proposed legislation in order to effectively communicate its key provisions to your existing and potential clients. However, you are not on your own in this education process. Trade groups such as the American Council of Life Insurers, as well as LTCI companies, understand that there is much misinformation out there -- which is why they are committed to working together to ensure that producers are properly informed about how the CLASS Act and health care reform could affect the LTCI sales environment.
Proposed enrollment eligibility
The core element of the CLASS Act is that it creates a voluntary payroll deduction program. This means that someone must be actively employed (i.e., receive wages or self-employment income) in order to be eligible for enrollment in the program.
This also means that some groups of individuals, such as stay-at-home spouses and early retirees (who should also be planning for future long term care expenses), may not be eligible for enrollment.
Additionally, even if someone is eligible to enroll, they will still have a five-year vesting period after the first premium dollar is paid before they can access benefits.
Another limitation of the CLASS Act is that, if passed, the program probably won't kick in any time soon, since the legislation gives the Health and Human Services Secretary until October 2012 to publish rules about the program.
Therefore, the CLASS Act program may not be available via payroll deduction until at least 2013. It is important to keep in mind that anyone who is in their late 50s or older today might run the risk of "aging out" of the program before they can receive any payout.
Finally, the CLASS Act, as it is currently written, will not be able to cover the full expected cost of long term care provided in a facility or at home. This is because the current versions of the CLASS Act propose providing less than an average of $50 per day for long term care needs. Compare that with the fact that, according to Genworth Financial's 2009 Cost of Care Survey, a nursing home stay averages $203 per day, and home health care can run as high as $46 per hour nationally. Given this, it's essential that Americans still plan ahead regarding potential LTC expenses and how these expenses could affect their retirement savings.
Savvy agents should also be aware of a potential problem regarding high premium costs caused by adverse selection and guaranteed issue. The CLASS Act is based on the assumption that a high percentage of working Americans -- regardless of age, gender, health status, or marital status -- will voluntarily pay the required premiums to become and remain part of the program. However, some actuaries estimate that participation will differ depending on demographics. If overall participation goes down, the government might have to raise premiums in the future to accommodate costs.
Finally, agents should also know that if the CLASS Act comes to fruition, carriers will begin to develop supplemental products, which could offer such features as increased coverage at a certain level of disability and one-time coverage for a catastrophic long term care event. Current and potential clients will benefit from agents who keep their eyes peeled for news on innovative products that would complement what the CLASS Act offers, to allow consumers to be able to realistically cover expected LTC costs.
Since the CLASS Act has not been signed into law -- and may never be signed into law -- as a producer, it's your role to educate prospective and current clients about the importance of proactively planning against long term care risks in order to best maintain their financial security. While the CLASS Act might be part of that discussion in the future, you should let all clients know that the proposed program might not be able to provide them with the full coverage they need, and that it's important to also look into the variety of private long term care options. LTCI is not a one-size-fits-all product, and you should have a frank conversation with clients about their long term care expectations and adequately preparing oneself financially for potential long term care costs -- with or without the assistance of this new government plan.
Beth Ludden is the senior vice president for long term care product development at Genworth Financial. She can be reached at 804-922-5517 or firstname.lastname@example.org.
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