CLASS Act Myth #3: Government Provided Coverage is Less Likely to Have Premium Increases
Posted on June 17th, 2010 by Em-Power ServicesThe U.S.A. seal of approval is as good as the Good Housekeeping seal of approval for many citizens. After all, the Federal government has never reduced Social Security benefits or Medicare and the country has not shown the political will to curb spending on these politically popular programs. Everything has limits though and if the Federal deficit is not approaching its limit, it be getting close.
Besides that, CLASS Act is fundamentally different from Social Security and Medicare because most every American participates in both these programs. CLASS Act on the other hand is voluntary; each person, young, old, healthy and sick will make an individual decision to participate or not. And that’s the problem. As discussed previously, a voluntary program violates the fundamental underpinnings of all insurance; spreading a risk over an entire population.
According the Allen Schmitz, FSA, MAAA from Milliman, and independent and highly respected actuarial firm, CLASS Act premiums are actually more likely to increase than private insurance. He says “there is probably greater risk that CLASS Act will need rate increases than the private market”. There are many reasons for this and several have been discussed in previous posts. Adverse selection, premium subsidies for certain groups, limitations on increasing premiums for certain groups.
Another issue understood by few people without an insurance or actuarial background is the methodology of determining the rates that will be sustainable over a 75 year window. By statute CLASS must set rates to ensure financial viability for 75 years, and after 10 years the Department of Health and Human Services will review pricing to ensure the program enough premiums collected to cover benefits projected for the next ___ years.
The problem with using a 75 year window is that it does not take the “tail” of long-term care into consideration. What I mean by that is at the end of 75 years you have many healthy people who have contributed premiums for 20, 30 and even 50 years. Well when they figure solvency at the end of 75 years, the claims that will come due for all those people who have paid in to the program are not considered.
Empower helps employers of all sizes implement long-term care insurance benefit programs in the workplace and conducts workshops & educational classes concerning LTC and the CLASS Act for employers and employees. If you would like to know more about the CLASS Act and how it might impact your company call us.
We also provide Resources, training, and assistance to brokers looking to educate and help their clients with Long Term Care and understanding the CLASS Act.
For help or more information contact Doug Ross at 800-483-1115, send an email todross@empowerltci.com, or visit our site at www.empowerltci.com.
Tags: Class Act, Class Program, Community living Services and Supports Act, Education for long-term care, Employee benefits, Employee recruiting strategies, Employer sponsored benefits, Executive benefits, Federal long-term care legislation, group long term care insurance, long term care insurance plan, long term care insurance quote, Long-term care education, Long-term care insurance tax advantages, Long-term care planning strategies, LTC, LTCI, Nursing home insurance, Opt out long-term care insurance, Paying for home health care, Paying for nursing homes, Tax advantages of long-term care planning, Voluntary long-term care insurance, Wealth preservation, worksite Long Term Care Assisted living | Filed under: Class Act, worksite Long Term Care
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One other question: Have you look at what the prmueims will jump to after that next term? Gauranteed $250 will seem cheap when you look at what it will jump to next. That next time you’ll be betting $250/month that you will die within the next 5 years by age 63. After that what $500 a month that you’ll die before age 68. Then you’ll be betting $800 a month that you’ll die by 73. Why not bet $300 a month now and bet that you’ll die at some point and not worry about how old you’ll be when you die? (PS: those numbers are just guesses as to what the prmueims will go upIt really depends why you are buying the insurance in the first place.Are you protecting a temporary need or a perminant need?Temorary needs are things that will go away after a certain period of time. Temporary needs may include (but not limited to):Debt paymentMortgage paymentChild care for young childrenmaking sure the kids get through schoolproviding your spouse with income for a couple years to greivePerminant needs are something that will never go away whater you die tomorrow or 40 years from now. Perminant needs may include (but not limited to):Funeral costsAdmin feeslawyers feesFinal years income taxesEstate taxesCharitable giviing/legacy fundIf it’s temporary needs go with Term. If it’s perminant needs go with whole life.I like to relate it to housing. Term in like renting a house. It’s ussually a temprorary fix. Yes it’s cheaper, but you’ll never own it. The landlord can kick you out eventually (Term will expire at age 80 or 85) and there’s nothing you can do about it. The landlord can also jack up the rent every few years (IE: prmueims increasing) and if you sell it (cancel the policy) you get nothing back just hand back the keys and they thanks for your time.Whole life is like buying a house. It’s a more suitable long term solution. Yes, it’s a little more money, but you never have to worry about getting kicked out, or the rent going up. You also build up equity (cash value) so if you do decide to move on, you’ll get something back out of it in the end.And for the Buy Term and Invest the Rest folks it’s a good stategy in theory, but it’s not suitable for everyone and often doesn’t work out as planned. People sometimes aren’t disaplined or knowledgable enough to invest the rest, do it right and leave it there. It should not be preached as a one size fits all solution because it clearly isn’t.
As the Benefits Manager for my company, I get asked this qutosien a lot. We provide term life for our employees, and they have the option to purchase more, and if they ask, I advise them to check with their home owners/car insurance etc, vendor to see about a whole life policy.Whole life insurance is always a better product. While it’s more expensive, the right policy will virtually pay for itself in the long run. For example, the whole life policy I have for myself will no longer require that I pay premiums in about 20 years (I’m 41 now), with the same benefit. In fact, my $35,000 benefit will actually be worth closer to $40,000 by the time I’m 65. (I purchased mine through Farm Bureau, who also insures our home and autos) Bottom line: if you can get some term life through your employer, the premium may be a little more stable, but 58, you’re really reaching the limit of affordable insurance. Get a whole life policy now. Look at what you’re insuring-do you need money to pay off a home if you die? Just to pay bills? Do you have dependents? Your mortgage lender may have life insurance for your mortgage-enough to pay off the house if you die. If you have no dependents, and just need enough to pay for any bills that may be left behind, check out a small policy a whole life policy, and make sure the people who need to know KNOW how to file a claim if necessary.
Run the numbers. Whole costs about ten times as much as term. If you inevst the difference, you’re WAY ahead of the game. The only way you get your money back on whole life, is by DYING. Otherwise, the cash value is about 10% of what you’ve paid in pretty crappy return, from an inevstment point of view. Define your goal. For most people, buying term inevsting the difference, is the most cost effective way to acheive the goal.
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