hould You Opt Out?
Employers • Employees • The Nation
Table of Contents Overview
Included in the 906-page legislation commonly known as the "health-
2 Overview care reform" act, lies a 19-page section addressing an important
3 The Long-Term Care Challenge issue likely to impact you, your employees and your company.
• What does it cost?
The Community Living Assistance Services and Supports Act, or
• Who pays the bill? CLASS Act, is part of the Patient Protection and Affordable Care
• What is the impact on your business? Act signed into law by President Obama in March 2010. The CLASS
5 History and Intent of the CLASS Act Act establishes a national government-run long-term care insurance
program, to be offered primarily through employers. The legislation
6 Timeline signals the government's recognition of the need for long-term care
6 What CLASS Requires of Employers planning. People of any age can require long-term care services and
few are equipped to pay the high price associated with such care. In
7 CLASS Eligibility and Benefits
the majority of cases, care is provided by family members or other
• Who is eligible for coverage? unpaid caregivers, a situation that ultimately affects employers.
• When are benefits paid? According to one study, productivity losses resulting from the burden
of caregiving cost businesses an estimated $33.6 billion annually.
• How much are benefits?
• Who can provide care? The CLASS Act is the federal government's attempt to offer long-term
8 Enrollment Provisions care coverage to as many people as possible. However, the legisla-
tion has its share of shortcomings. Areas of concern include inade-
9 Important Considerations
quate benefits, expensive premiums and uncertain long-term viability.
• Benefit levels
• Premium rates Nonetheless, the CLASS Act is bringing to light the value of long-term
care insurance as an important estate planning and financial preser-
• Five-year vesting requirement vation strategy. As an employer, you will decide to opt in or opt out
• Dependent coverage of the CLASS program. Your employees will automatically be en-
• Underwriting rolled unless they elect to opt out, whether the program is offered
through your workplace or other alternative means of enrollment
• Long-term viability as yet to be determined by Department of Health and Human
13 Conclusion Services.
Many employers will choose to instead offer employees private long-
term care insurance. This alternative is relieving employers of the
burdensome administrative tasks inherent in CLASS participation,
as well as providing employees access to significantly more secure,
flexible and cost effective solutions to long-term care needs. The
CLASS Program though may provide an excellent option for
those employees who are unable to qualify, because of poor
health, for a private long term care insurance policy.
• A yearlong stay in a nursing home costs $83,585 for a private
The Long-Term Care Challenge room or $74,825 for a semi-private room.
• The monthly base rate in an assisted living community rings up at
Compared to the number of people who will need long-term care at $3,293.
some point in their life, relatively few have planned accordingly. Mis-
conceptions about the likelihood of needing care, its cost and who • Hourly rates for home health aides average out at $21. Daily rates
will foot the bill may be to blame. for adult day services come in at $67.
In reality, an estimated 12 million Americans of all ages currently As high as rates are today, they will inevitably continue to increase
need long term care services and 40% of nursing home residents in the future. From 2004 to 2010, the compound annual growth rate
are under the age of 65, debunking the myth long term care is solely averaged six percent according to one report.
an issue for the elderly.1 Unable to fully care for themselves, individ-
uals receive long term care in a variety of settings including at home Who pays the bill?
or in an assisted living or skilled nursing facility.
All too often, a long-term care event wipes out a person’s savings.
Contrary to popular belief, most long-term care services are not cov-
What does it cost? ered by Medicare, major medical or disability insurance policies. In
Like healthcare in general, long-term care comes with a hefty price addition, the future of both Medicare and Medicaid is facing serious
tag attached. MetLife Mature Market Institute's 2010 Market Survey financial challenges due to an aging population.
of Long Term Care Costs offers this glance at national average long-
term care rates: Individuals with reasonable income and assets will most likely fi-
nance longterm care on their own, making long-term care insurance
Get a Long-term care insurance quote here. a wise investment.
In 20 years it will cost
$ 619,769.18 What is the impact on your business?
For 3 years of care With an increasingly older population, demographic trends indicate
that more and more employees of all ages will assume the role of
family caregiver. Studies show that employees with caregiving re-
sponsibilities are more likely to experience health conditions from
depression to diabetes, costing employers 8% more in healthcare
costs for these employees than non-caregiving workers.
In addition, employers are experiencing productivity losses due to
issues such as absenteeism, workplace disruptions and reduced job
status of working caregivers, costing them as much as $33.6 billion
a year nationally.2
In addition to protection from these financial threats, many employ-
ers view long term care insurance as a way protect the retirement
assets their employees are accumulating through their 401K and
pension programs. Not surprisingly, long-term care insurance has
emerged as one of the most sought after employee and executive
3 http://www.ltcfp.com/ltcfp/requestquote.aspx 4
Total Estimated Cost to Employers of All Full Time Employed Caregivers
Although the CLASS Act became law in spring 2010, several details
Cost per Employee Total Employer Cost
have yet to be decided, leaving prospective participants with many
Replacing Employees $413 $6,585,310,888
unanswered questions. Answers should be forthcoming as the
Absenteeism $320 $5,096,925,912
Partial Absenteeism $121 $1,923,730,754
Department of Health & Human Services works through the legisla-
Workday Interruptions $394 $6,282,281,750
Eldercare Crisis $238 $3,799,082,202
Supervisor Time $113 $1,796,385,842 The following target dates have been set:
Unpaid Leave $212 $3,377,082,202
Full-Time to Part-Time $299 $4,758,135,522 January 1, 2011 - Program becomes effective
Total $2,110 $33,619,070,346
MetLife Care Giving Cost Study: Productivity Loss to US Business, 2006 January 1, 2012 - Eligibility requirements will be announced
October 1, 2012 - Premium rates will be determined
History & Intent of the CLASS Act
June 30, 2013 - Estimated rollout to employers
For decades, the federal government has been trying to encourage
Americans to buy long-term care insurance. Past efforts include the January 1, 2014 - Initial annual report on solvency due to Congress
creation of tax incentives for individuals and employers who purchase
long-term care insurance policies.
What CLASS Requires of Employers
The government itself is not in a position to pay the bill for Ameri-
cans' long term care. Medicare provides almost no benefits and As an employer, you will be required to make a decision about whether
Medicaid (welfare) is designed to pay only after individuals have to opt in or opt out of the CLASS program. Employers who choose
expended their own financial resources to near poverty levels to participate in CLASS should fully understand what the program
before meeting Medicaid requirements. will demand of them, as well as what it will and will not deliver to their
In an attempt to help working Americans pay for care in their homes
or community if inflicted with functional impairments, the late Sena- Companies will be required to handle administration of the program
tor Ted Kennedy introduced the CLASS Act in 2004. The legislation including setting up an auto-enrollment process, managing the opt-out
was signed into law as part of the healthcare reform act on March 23, option for employees declining participation, processing payroll de-
2010. ductions for premium for participating employees, and remitting
premiums to the federal government. Beyond that, the Department of
It’s purpose is to establish a national voluntary program for purchas- Health and Human Services has yet to clearly define the role
ing community living assisted services in order to: businesses will play in funding the administrative cost of CLASS.
1. Provide individuals with functional limitations the tools to allow them to maintain their To avoid taking on uncertain costs and possibly paying the price of the
personal and financial independence through a new financing strategy for community
living assistance services federal government's learning curve, many employers are exploring
alternate longterm care coverage options in the private sector.
2. Establish an infrastructure for such services;
3. Alleviate burdens on family caregivers;
4. Address current bias toward institutional care by providing financing and infrastructure
that supports personal choice and independence.
CLASS Eligibility & Benefits Enrollment Provisions
Who is eligible for coverage? Employers participating in the CLASS program will automatically
Individuals 18 years or older who earn wages subject to Social enroll their employees unless employees specifically opt out. The
Security taxes will be eligible for CLASS coverage regardless of legislation outlines the following provisions pertaining to enrollment,
any pre-existing medical conditions. There is no further underwrit- disenrollment and re-enrollment.
ing beyond the requirement that the employee is "actively-at-work."
Self-employed people paying associated self-employment taxes will
also be eligible. Initial Opt Out
Employees who choose to opt out when the CLASS program is
However, unlike private long-term care insurance, an employee's first offered to them may subsequently enroll only during open
family members are not eligible to enroll in the CLASS program un- enrollment periods to be scheduled by the government biennially,
der the employee's plan. at most.
When are benefits paid? Unemployment After Enrollment
To be eligible for benefits, participants must first complete a five-year
Program participants who leave their jobs are eligible to remain in
vesting period, which entails paying premiums for five years and
the program as long as they continue to make premium payments.
having been employed for at least three of those years.
Benefits will be payable when a vested participant has a functional Opting Out Post-Enrollment
limitation expected to last at least 90 days that involves a loss of two
Individuals enrolled in the program can choose to end coverage
or more Activities of Daily Living, or has severe cognitive impairment.
only during an annual disenrollment period. However, disenroll-
Activities of Daily Living include bathing, dressing, toileting, transfer- ment for failure to pay premiums can happen at any time.
ring, continence and eating.
Benefits will be paid for as long as the covered individual can prove Lapsed Coverage
that benefit eligibility criteria continue to be met. Participants who fail to make premium payments for three months
will be considered a new enrollee if they choose to begin making
How much are benefits? payments again. Premiums will be recalculated based on the par-
For participants determined to be eligible for benefits, the CLASS ticipant's age at the time of re-enrollment.
guarantees an average cash benefit of at least $50 a day. The benefit
amount will be dependent on the degree of impairment, and will be Re-Enrollment Credit & Penalty
adjusted annually for inflation based on the CPI.
Credit toward the five-year vesting requirement will be given to
participants who re-enroll within five years of letting coverage
Who can provide care? lapse. Participants who re-enroll after a five-year lapse will not
Benefits are payable whether or not any formal services are being receive credit for previous coverage, and will be subject to an
received, and may be used to compensate relatives, friends or additional premium penalty.
hired help who are providing care. Benefits can also be applied
toward the cost of services provided at an assisted living facility
or nursing home.
Read more about group long-term care insurance here.
Fina a Long-term care agent
In light of the approaching implementation of the CLASS program, Private long-term care insurance policyholders, on the other hand,
now is an excellent time to learn about long-term care insurance are able to select benefit levels that more closely reflect the actual
options available to you. When deciding which route is the best fit for cost of services. Most private long-term care plans come with daily
your company and employees, you are advised to take the following benefits of $100 to $400. Policyholders can also elect to add inflation
aspects of the CLASS program into consideration. protection, with options including an unlimited five-percent com-
pounding factor. Furthermore, an insurance company cannot reduce
benefits after policy issuance.
The CLASS program is expected to pay benefits between $50 and Premium Rates
$75 a day. The amount will increase each year based on a consumer
price index. However, the government may also reduce program One of the most highly anticipated pieces of information yet to be
benefits to ensure financial viability of the program. released about the CLASS program is the premium rates. The Secre-
tary of Health and Human Services is expected to have rates formu-
Unfortunately, CLASS benefits fall short when compared to the ac- lated by October 1, 2012. In the meantime, there are projections that
tual cost of care. For instance, the price of a single day in a nursing monthly premiums will range from $120 to $240 for most enrollees.
home averages $229 nationwide. Although a case can be made that Monthly rates starting at $5 will be available to individuals whose
CLASS was not designed to cover the full cost of facility care, it can income falls below federal poverty level and to employees who are
also be argued that even home health care - which averages $21 an full-time students ages 18-22.
hour - will quickly eat up the daily benefits paid through CLASS.3
Premiums will be based on the enrollee's age, and rates are de-
National average median rates for long term care: signed to
remain level. However, premiums may be increased annually for both
current and new participants to keep the program financially sound.
Participants age 65 and above who have paid premiums for 20 years
and are no longer actively employed are exempt from rate increases.
Some may be surprised to discover that healthy employees may
actually find lower premiums in the private long-term care insurance
market, which also offers more benefit-rich coverage.
5-Year Vesting Requirement
The CLASS program requires participants to complete a five-year
vesting period before they may become eligible for benefits. Enroll-
ees are also required to be working for at least three of the five years.
The obvious concern with the program's vesting requirement is the
possibility that a participant will need care before completing the
lengthy vesting period. In that scenario, the person would be
ineligible for benefits.
In lieu of a vesting period, most private long-term care insurance Actuaries inside and outside of government are concerned about the
policies include a waiting period which policyholders need to satisfy risk of adverse selection - the attraction of a disproportionate number
only once before collecting benefits. Waiting periods, also called of high-risk participants, which can lead to higher costs and premi-
elimination periods, typically range from 30 to 90 days. ums - and the resulting threat to the viability of the program.
Dependent Coverage Long-Term Viability
CLASS coverage is restricted to the participating company's em- The CLASS program must be entirely self-sustaining financially
ployees, and is not extended to members of the employee's family. through voluntary employee enrollments and subsequent premiums
paid by program enrollees. The legislation requires the program be
With this absence in coverage, CLASS fails to address one of the solvent over a 75-year period with reports on the program's solvency
main reasons employers choose to include long-term care insurance due annually beginning in 2014.
in their employee benefit offerings: to reduce employee caregiving
and the associated losses in productivity. There is great concern about the long-term viability of the CLASS
program. The uncertainty stems from factors including the high risk of
Family members are typically eligible to enroll in private long-term adverse selection and the difficulty in predicting participation rates.
care insurance policies at discounted rates under the employee's
plan. This option alleviates the burdens of family caregiving and al- If the program is determined to be actuarially insolvent after imple-
lows employees to maintain productivity on the job. mentation, administrators must take action to bring it into a solvent
state, or end the program altogether.
Underwriting Long-term care insurance policies in the private market are guaran-
teed renewable, meaning the company cannot cancel coverage. Pol-
The CLASS program offers guaranteed issue coverage based on a
icy benefits and rates, as well as a company's actuarial soundness
liberal "actively at work" requirement; enrollees are not asked any
are also regulated on a state level.
health questions. Whereas, private long-term care insurance carriers
review the health of applicants in the underwriting process, enabling
the insurer to determine eligibility for coverage and charge premi-
ums that are in line with the risk. Simplified underwriting may be
available with employer groups.
The absence of medical underwriting in the CLASS program is ex-
pected to be particularly attractive to people with pre-existing health
issues who might not otherwise qualify for coverage. This same
provision, however, is extremely worrisome to insurance industry
The CLASS Act, the government's most recent reminder of the need
for long term care planning, is greatly increasing the attention given
to the value of long-term care insurance. As a result, long-term care
insurance is becoming an even more vital component of employee
benefit packages to recruit, reward and retain talented workers.
While CLASS will be of value to employees with health conditions
that would prohibit them from qualifying for traditional long-term
care insurance, the majority of individuals will find private market
coverage to be a superior alternative.
Long-term care insurance sold through the private market offers
benefit-rich policies that provide adequate coverage for costly long-
term care expenses. And when compared to CLASS, premiums are
more affordable in the private sector. Furthermore, one of the most
advantageous provisions in private long term care insurance for
employers is the option for employees' family members to also pur-
chase discounted coverage. Rates are based on applicant age so
the younger one is at enrollment, the lower their rates will
always be when compared to enrolling at a later date.
There are many things known about the CLASS Act program, still
others yet to be determined - but enough to know that the private
market will be a better alternative for the healthy and the CLASS may
be a good alternative for those who are not. It’s never too early to be
prepared. We invite you to learn more about what private long-term
care insurance can do to provide peace of mind today and financial
security tomorrow, for you, your employees and your company.
1. US Department of Health and Human Services, National Clearing House for Long
Term Care Information, October 2008
2. MetLife Care Giving Cost Study: Productivity Loss to US Business, 2006
3. Unum Long Term Care Cost Survey, 2008