CLASS Act Myth #4: Coverage Will be the Same as Private Long-Term Care Insurance

Posted on July 8th, 2010 by Em-Power Services

Remember when you were young and you learned what happens when people assume things? You make an a_ _ out of you and me. Well, if people assume CLASS Act coverage is the same as private long-term care insurance, making an a_ _ of themselves could be the least of their problems. Coverage with CLASS is much different than private insurance and it’s in everybody’s interest to understand those differences.

Regulation differences
Private insurance carriers are required to withhold significant reserves based on the amount of insurance sold. Those reserves must be invested and set aside to pay future claims to protect policyholders. Another difference is the process of increasing premiums on existing policyholders in the event it becomes necessary. For insurance companies to increase premiums, they must receive approval separately from each state Department of Insurance individually and premiums must be increased the same for every person that ever purchased that policy series regardless of age, how long they owned the policy or health.

With CLASS Act on the other hand, the power to increase premiums rests completely with the Department of Health and Human Services and reserves are not held to pay claims. Premiums paid into CLASS are credited to a trust account and accrue interest, but the funds are used to pay current bills. In effect, the government holds IOU’s from itself to pay future claims.

The trigger to collect benefits under CLASS Act can be changed
There is more than one way to increase premiums to policyholders. Only the Federal Government allows itself to change the rules of the contract after customers purchase the policy. If you read the CLASS Act where the definition of how you become benefit eligible, it says that “an individual must either require help to perform either 2 or 3 Activities of Daily Living or have a cognitive impairment”. Private insurance requires people to require help with 2 ADL’s. There is no opportunity to change the trigger to 3 ADL’s which would obviously limit the number and size of claims paid.

Five year waiting period
Private insurance is purchased with a waiting period that can be between zero and 365 days depending on the carrier. CLASS Act does not have an elimination period but requires you to pay premiums for 5 years before becoming benefit eligible and you must work for three of those years. What happens if you have an accident within a couple of purchasing coverage?

Planning for long-term care is not a one-size fits all proposition and that’s what CLASS Act offers. Private insurance coverage has a lot of flexibility and options to tailor coverage that fits each persons specific circumstances. And according to current estimates, private coverage will be less expensive for the 85% of people healthy enough to be medically underwritten when they apply at a young age through an employer sponsored program.

Education for employees
It can be argued that education is the most important benefit when companies implement long-term care insurance benefits. People tend to tune out when the discussion of long-term care arises. Some think it’s only for seniors and others choose to ignore the topic because of more pressing financial obligations. CLASS Act limits the amount of money that can be spent on administrative, marketing and administrative costs. Not providing education limits participation and ultimately increases adverse selection as less healthy people will be more inclined to participate.

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, or visit our site at

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One Response

  1. Eileen Tell says:

    There is a lot that is not yet known about CLASS so while there are areas of concern, it is difficult to say with any certainty that it will/may change benefit triggers or will/may cost more than private coverage. The “2 or 3 ADL” language is intended to apply to the initial plan design. While it would certainly put CLASS out of step with private LTCI to have a 3 ADL trigger there is no evidence of any intent to maintain flexibility to change the trigger over time; I’m not saying it is impossible, just that it isn’t articulated that the flexibility to change benefit triggers will or will not be part of the coverage. The best advice is buy private coverage now and if CLASS looks like a good deal once all the facts are “locked and loaded” then consider supplementing your private coverage or reducing it by the amount offset by CLASS. But as in all things, read all the fine print (if there is any to read with CLASS).

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