It seems that many times throughout the past two decades we have followed possible legislation that could have had an effect in some way on the long term care insurance industry. Some of the legislation that has actually passed has had a huge impact on the way we do business. For example, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) gave us tax qualified long term care insurance and the Deficit Reduction Act of 2005 (DRA) gave us partnership policies. In both cases, there were plenty of varied opinions coming from all over the marketplace on how these new guidelines would change what we all do on a day-to-day basis. Although there are always hurdles to cross and lessons to be learned, we continually emerge strong and continue to sell this critically important type of insurance. Sometimes, we surface even stronger than before. I wholeheartedly believe that this is what will occur if CLASS becomes part of health care reform.
So what exactly is the Community Living Assistance Services and Supports Act, known as CLASS? The idea behind this legislation is to make long term care type services available to all Americans in need. The specific wording is as follows:
Stated Purpose of the bill (Sec. 3201):
The purpose of this title is to establish a national voluntary insurance program for purchasing community living assistance services and supports in order to...
(1) Provide individuals with functional limitations with tools that will allow them to maintain their personal and financial independence and live in the community through a new financing strategy for community living assistance services and supports
(2) Establish an infrastructure that will help address the Nation's community living assistance services and supports needs
(3) Alleviate burdens on family caregivers
(4) Address institutional bias by providing a financing mechanism that supports personal choice and independence to live in the community
If passed, this will mostly likely be a program that will be offered to working people aged 18 and older who will have to choose to opt out if they do not want it. There will be a monthly premium that has yet to be fully determined, and a person would need to pay premiums for five years first before any benefits would be accessible to them. They would qualify for these benefits by having a loss of activities of daily living or a cognitive impairment (similar to the LTCI policies we currently sell) and would get anywhere from $50 to $100 per day of cash benefit for an unlimited period of time, depending on degree of disability. In addition, there would be no medical underwriting, so this coverage would be offered on a guarantee issue basis.
At first glance, the CLASS Act looks like it would put the long term care insurance industry out of business. A government program with no underwriting offering unlimited cash benefit LTCI? I can see why most of the major carriers have spent a lot of time and money fighting against it. But, we can also all think out of the box for a moment. Our industry severely needs a wakeup call, and I believe that the CLASS Act will give us one. We have had a terrible time getting growth out of this marketplace in recent years. After all, more than 90 percent of the population has not yet purchased this product. Well, I think what CLASS will do is get hundreds of thousands more people in America discussing the issue of long term care.
So, awareness is one big reason why CLASS will be a good thing for us, especially since this is an opt-out program. This means that every person who it is offered to will have to say "no" if they don't want it. Generally, when people are required to opt out of a program, they do a bit of research first. They might check to find out exactly what it is or how much they would have to pay for a comparable benefit in the open market. This could give us a huge boost as an industry! People everywhere will be talking about LTCI. What more could we want? Awareness is the key to showing sales growth.
The next positive is that most sources seem to be saying that premiums for CLASS will be much higher than premiums for a similar product in the individual LTCI arena. Therefore, as soon as people research it, they will realize that they can do much better on their own. Hopefully, they will reach out to their independent insurance agent and get a proposal to verify this. They also, of course, will not have a five year waiting period before benefits kick in on a traditional LTCI policy like they would with the CLASS Act. This is another very big difference.
As I mentioned earlier, the mainstream industry thinkers that I have heard from are against the CLASS Act. I have been told that the main reason is that they feel this benefit would confuse Americans into thinking that they had legitimate LTCI coverage, when the truth of the matter is that this coverage would be extremely inefficient. In addition, people are obviously already confused. That is why most haven't bought LTC insurance. But confusion is not necessarily bad. It is what drives some people to seek advice and counsel. I absolutely agree that a $50-$100 per day benefit is simply not adequate when it comes to covering the actual cost of care in a long term care situation. But don't forget that we really do need that wakeup call, and anyone who researches this even the slightest bit will find that the coverage they are being offered is way below the actual cost of care and likely higher priced than anything they can find in the general industry. This, in my opinion, will cause many of those prospects to search out an agent and purchase long term care insurance outside of CLASS.
Another big plus to having the CLASS Act is that we would be able to help uninsurable prospects that we come across. So many people are without coverage because they just cannot qualify medically. It would be terrific to have an answer for them. We also lose many sales due to an uninsurable spouse situation. With CLASS, we will be able to move forward with insurance for the healthy spouse and still have an available option for the unhealthy one. Many people believe that doing a good deed will come back to you tenfold. Well, when your unhealthy client gets coverage (something is better than nothing) from CLASS and you in no way benefited from that, you better believe that referrals will be coming your way.
Last, but certainly not least, if it turns out that the CLASS Act premiums are lower than expected and healthy people actually choose to buy into the program, once again, there is a large opportunity for the LTCI Industry. The opportunity to sell a supplement! Yes, this dramatically shifts all that we know and how we currently sell products, but it is a wide open marketplace for us to explore, with the possibility of selling quadruple the amount of coverage that we do today. And don't forget, the biggest benefit will be that more of America will have this vital insurance coverage in place for when the time comes.
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