Health Care Reform’s CLASS Act

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 (Section 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, CLASS will most likely be a program that will be offered to working people ages 18 and over who will have to choose to opt out if they do not want it.
BROKER WORLD invited several individuals who specialize in the long term care insurance business to say a few words about CLASS.

Al Schmitz,FSA, MAAA
Principal, Consulting Actuary
Milliman, Inc.

Steve Schoonveld,FSA, MAAA
Chief Financial Officer, Actuary
LifePlans, Inc.

In many respects, the Community Living Assistance Services and Supports (CLASS) Act has something for everyone—at least in the short term. It will increase overall awareness of the need for long term care (LTC) planning, provide an insurance solution for individuals not able to obtain insurance, and create opportunities for LTC insurers and LTC agents and brokers. However, the short term gains must be weighed with potential long term pain for the CLASS Act program, the industry and those we seek to assist.

The CLASS Act has the noble intention of addressing some of the difficult problems with the funding of long term care services. Perhaps one of its most important merits is the mere fact of its existence as a way of illuminating the need for financing solutions for the risk. The resulting increased awareness may cause individuals to give consideration to their own personal long term care situations.

A sneak preview of the potential increased awareness that may be created by the CLASS Act can already be seen by the attention given to this Act as part of health care reform. If the CLASS Act is indeed passed, it will increase individual and consumer awareness and encourage a greater number of Americans to take personal responsibility for planning for the LTC risk. This could ultimately create a better prepared and fiscally responsible country.

While there is significant and well-founded concern over the long term impact of potential adverse selection within the CLASS Act, the program provides an opportunity for individuals who cannot obtain LTC insurance for health or financial reasons to be covered under the program. The program is guaranteed issue with only a minimal actively-at-work requirement, such that coverage can be obtained regardless of health status. In addition, the Senate version of the CLASS Act provides a significant subsidy for students and those with income below poverty level.

An implemented CLASS Act, whether sustainable or not, presents an opportunity for agents and brokers selling both group and individual LTC insurance. First, with employers who do participate there will be that annual opportunity for individuals to be reminded of the need to address this risk. Second, there is likely to be a greater necessity than currently expected to promote the CLASS Act program so that the self-employed, spouses of employees, and employers themselves will be encouraged to participate. This may very well be the national “Got Milk?” campaign that the LTC insurance industry craves. To fulfill the potential of this advantageous environment, the industry must provide competitive products that will appeal to the middle class—the target audience that this program intends to reach.

The arrival of 2010 brings the industry an increased variety of opportunities beyond standalone LTC insurance options to assist consumers to manage their LTC risk. The Pension Protection Act has enabled life and annuity combination products to become all or a part of the solution for consumers. Furthermore, the growth in critical illness products either purchased at the workplace or individually has given flexibility to consumers. A properly designed CLASS Act may add a fourth leg to the table, but the key question is: how sturdy will such a table be? If the CLASS Act leg is wobbly, consumers may indeed fall.

Whether at the kitchen table or an employee meeting, agents who sell LTC insurance will receive a higher level of attention. There will be a comparative sale either openly discussed or in the minds of consumers. Historically, the product provisions, the financial stability of the insurer, the intensity of underwriting, and the history of rate increases have all been comparative points that require examination in either the individual or group markets. The same will take place with a CLASS Act program that, if implemented as currently designed, will provide countless comparisons in favor of private insurance. Potential policyholders of either private insurance or the public plan will compare not only the premiums but the risk pools that they are joining when purchasing a policy.

Critics who have examined the structure of the CLASS Act point out that there is a potential that individuals covered by it will falsely believe that they are covered for all of their LTC risks. While it is true that the benefit levels do provide meaningful assistance for some LTC services and support, the program structure may not be sufficient to cover all long term care needs.

Additionally, there will likely be many who use the CLASS Act program to further delay a decision. These individuals will plan to take advantage of the opt-in provisions, despite the penalties, and do so once their needs become greatly apparent. Such individuals, when diagnosed with conditions that are likely to require long term services and support, will take advantage of this ability to adversely select against the program because of the weak underwriting, despite the five-year wait period.

Proponents of the CLASS Act argue that the program will enable a public and private partnership in much the same way as programs in other countries. They also mention that the CLASS Act will enable supplemental insurance policies to be developed. What would these products look like and what difficulties would carriers face in designing and administering such products?

A supplemental or wraparound product could be developed and provide coverage for a CLASS Act program participant for the first five years of issue when the program does not pay benefits. In addition, a supplemental private insurance plan could pay benefits over and above the coverage levels provided by the CLASS Act program, with indemnity, reimbursement, or cash provisions similar to what the industry currently provides. As a supplemental payer, the premiums for private insurance may be reduced, although the expenses to administer such an insurance product would not likely decrease proportionally.

Private insurance carriers will have significant concerns while designing and pricing a program that supplements CLASS Act benefits. First, because of the lack of sufficient underwriting even at a proxy level, carriers will not be able to rely upon purchase of the CLASS Act as entry into a supplemental plan. Lack of sufficient direct or proxy underwriting to prohibit adverse selection on a voluntary program invites adverse selection.

Second, the presumptive claim eligibility provision within the CLASS Act differs from the private industry such that adjudication approaches may require private insurance programs to approve claims that differ from the underlying pricing.

Finally, the uncertain sustainability of the CLASS Act program where premiums are required to be raised and benefits decreased to maintain solvency provides uncertainty for the private market. These issues will differ in a matter of degree between the group and individual private insurance markets, but each is significant enough to cause concern for pricing actuaries.

Therefore, the CLASS Act program is likely to increase the pricing volatility within a supplemental approach because of the inconsistencies of the program with private insurance and the greater expense ratios than current LTC insurance products for underwriting, administration and claim adjudication activities. LTC insurance carriers will likely compete directly with the CLASS Act program and be cautious in their development of supplemental products.

Beyond the final provisions of a sound CLASS Act, there remain many uncertainties. Will the LTC shoppers guide require a disclosure of the availability of the CLASS Act program? Will the suitability forms required by many states do likewise? How will state partnership plans be affected? These are but a few concerns for producers that immediately come to mind.

• In the short term, the provisions of the CLASS Act are positive for many people.

• In the long run, there is significant risk of potentially harmful scenarios. It is instructive to contemplate what those might be and how those scenarios might impact clients and individuals.

If the CLASS Act does not control adverse selection and insure a reasonable spread of risk, the potential long term pain is extreme. This and specific design restrictions are the main reasons for the conclusion of many industry and government actuaries that the program is not actuarially sound and is therefore unsustainable. This should also concern consumers who are seeking to become policyholders in a risk pool that will provide benefits when needed and that is realistically designed to be sustainable.

As is required in the bill, the program must implement rate increases and/or benefit reductions if it is determined to not be financially solvent. If significant rate increases or benefit reductions are necessary, it may be determined that additional action will be necessary. The government may look to the private insurance industry and their ability to write premiums for more healthy risks at a potentially lower premium as “causing” financial instability of the CLASS Act program. Another risk to the insurance industry under this scenario is legislation that limits the underwriting, risk selection, or rating approaches that are important tools for managing the LTC risk. This would dramatically change the insurance landscape and has the potential to significantly reduce the private market. Also, given the size of the liability and dollars in the CLASS Act, there is significant risk to taxpayers that the program will ultimately need to be bailed out if rate increases, benefit reductions, and other market changes are not sufficient to offset the adverse selection that could potentially occur.

While the program is admirable for its intentions, the specific requirements contained in the legislation are not likely to provide for those it intends to assist. However, without passage of the CLASS Act, the status quo will persist and the needs of consumers will continue to grow. If the CLASS Act does not make the final cut as part of health care reform, the question will remain: Can the industry provide the answers and reach this market before the next version of the CLASS Act emerges? [AS] [SS]

Both Schmitz and Schoonveld have served on the Society of Actuaries Long Term Care Insurance Section Council and were members of the SOA/AAA team of actuaries who produced the paper titled “Actuarial Issues and Policy Implications of a Federal Long Term Care Insurance Program.” The paper can be accessed at

Julie Gelbwaks Gewirtz, CLTC
Vice President, Marketing
Gelbwaks Insurance Services, Inc.

It seems that many times during the past two decades we have followed possible legislation that could have 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. To name a few, 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 leap and lessons to be learned, we emerge strong and continue to sell this critically important type of insurance—long term care.

Sometimes we surface even stronger than before. I wholeheartedly believe that this is what will occur if CLASS becomes part of health care reform.

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, that offers unlimited cash benefit LTC?! I can see why most of the major carriers have spent a lot of time and money fighting against it.

However, we should also “think outside the box” for a moment: Our industry severely needs a wake-up 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. Why have we not reached the more than 90 percent of the population that has not 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.

Thus, awareness is one big reason why CLASS will be a good thing for us—especially since this is an opt-out program, which means that every person who is offered the program 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 LTC—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 LTC insurance 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. Of course, they will not have a five-year waiting period before a benefit kicks in for a traditional LTC insurance policy as they would with the CLASS Act. This is another very big difference.

As 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 LTC 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! Confusion is not necessarily bad. It is what drives some people to seek advice and counsel.

I absolutely agree that a $50 to $100 per day benefit is just not adequate when it comes to covering the actual cost of a long term care situation. But don’t forget that we really do need that wake-up 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 most 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 LTC insurance outside of CLASS.

Another big plus to have the CLASS Act is the simple fact 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 LTC insurance industry. The opportunity to sell a supplement! Yes, this dramatically shifts all that we know and how we sell product currently, 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 of all will be that more of America will have this vital insurance coverage in place for when the time comes. [JGG]


D. Corey Rieck, MBA, CLTC

CLASS (Community Living Assistance Services and Support) I, introduced by the late Senator Edward Kennedy, would essentially establish a national long term care program that would, in theory, payroll deduct the premiums for its participants.

The version that has largely been discussed would pay roughly $50-$75 a day in cash benefits. The folks utilizing these services under this plan would largely be able to use the benefits in the same continuum of care, services and housing that are available with current plans sold by insurance carriers.

We are in the business of education. That said, how will this affect us? What it may do is afford us the opportunity to educate clients further on what is involved with purchasing a financial instrument such as long term care insurance from the government versus purchasing it from one of the major long term care players in the market today.

If the ceiling of the benefit is $75 a day, will that help secure the kind of care your clients desire? Certainly there is a great opportunity to talk about the cost of living as it relates to geography by utilizing one of the carrier surveys that discusses costs as they pertain to assisted living, nursing homes, adult day care, etc. Your clients will want to understand if the CLASS program will fully fund their care needs.

This is yet another in a succession of examples that further demonstrate the government’s position on funding custodial care; and that is—we have a better chance of seeing Elvis than we have for the government to pay for our custodial care.

Over the years we’ve all seen the reform that has taken place with Medicare and Medicaid. We’ve seen the impact of implementing the Partnership programs as a result of the Deficit Reduction Act. CLASS may prove to be a great opportunity to educate clients on yet another government message on the long term care issue.

It could be a significant step in the right direction. After all, there are numerous messages that have been sent by the Federal Government that basically tell us we are responsible for our own custodial care, and our choice is to pay for it with our principal, or with interest from our principal, i.e., a well-planned-out long term care plan.

We may be in a position to really help clients further once we educate them on whether the CLASS plan will secure the kind of care they wish to have when they need it—if and when it becomes available. [CR]

Stephen Moses,President
Center for Long-Term Care Reform

Has Congress got a deal for you?! It’s a new government LTC insurance plan included in both the House and Senate health reform bills. Here’s what CLASS (Community Living Assistance Services and Supports Act) proposes.

If you (1) don’t opt out of the one-size-fits-all program (you’re in automatically otherwise—no choices, take it or leave it) and (2) if you pay your $100 (or more) extra monthly payroll tax for five years (to “vest”) and (3) you remain employed (at least marginally) and (4) you need help with two, three or four out of six activities of daily living, such as dressing, bathing, eating, toileting (depending on what the U.S. Department of Health and Human Services [USDHHS] decides CLASS can afford), then (5) you may receive a benefit of $50 or more per day (again depending on what the USDHHS thinks the system can bear) for as long as you need it (no limits on the benefit which pays forever once you quality).

Now, you’re a savvy consumer. So you ask some questions just as a client might interrogate you if you were trying to sell a private insurance product.

Question 1: “I’m healthy,” you say, “I eat well, I work out. I have no more than an average risk of needing expensive long term care someday. How do I know I’m not paying higher premiums so others can pay less? How do you price my risk? How do you underwrite?”

Answer: CLASS has no underwriting—anyone, no matter how frail or infirm, can participate. Everyone pays the same premium, but only people who need services will receive benefits. Insurance professionals call this “adverse selection.”

Question 2: “I usually buy (life, health, auto, fire) insurance to replace the small risk of a sudden catastrophic loss with the certainty of an affordable premium. What will this coverage do for me if I have a stroke or get hit by a truck tomorrow and need full-time skilled nursing care?”

Answer: CLASS pays nothing until you’ve contributed premiums for at least five years and then about a quarter of the average cost of a private nursing home bed ($219 per day) if, and only if, the USDHHS decides it can afford even that.

Question 3: “I’ve heard there is nothing but IOUs in the Social Security and Medicare trust funds and their unfunded liabilities top $106 trillion. How would the CLASS Act’s trust fund protect my investment?”

Answer: Money is fungible—as long as the federal budget runs a deficit, your premiums will go to make fiscal ends meet. In fact, half the deficit reduction alleged for “health reform” comes from counting the CLASS Act’s claims reserves as available surplus revenue! The CLASS Act’s promise to pay you benefits someday is tantamount to: “Trust me, I’m from the government, I’m here to help you.”

Question 5: “This CLASS plan sounds awfully top-heavy. Is it actuarially sound?”

Answer: CLASS advocates—LTC providers who need the revenue and people who are uninsurable without it—say CLASS is sound actuarially. The American Academy of Actuaries, the actuary for Medicare and Medicaid, and the Congressional Budget Office say it isn’t. Who ya gonna trust?

Question 6: “What are my options if I opt out of CLASS?”

Answer: Private long term care insurance is available in many forms. It is priced for actuarial solvency; it is underwritten so you pay only for the level of risk you bring into the risk pool; it invests your hard-dollar premiums in solid, protected reserves; it’s regulated to ensure a guaranteed benefit; and it is a contract enforceable in a court of law. CLASS has none of these characteristics.

Question 7: “CLASS sounds like a sucker deal, just another way to transfer wealth from me to others the government thinks need my money more than I do. Right?”

Answer: Bingo! The Medicare and Medi­caid actuary estimates that only two percent will use CLASS. The people who participate will be those who know for sure they’ll need LTC someday and sooner rather than later.

The Big Question: If CLASS passes, how will consumers react?

The Big Answer: Since 1965, when Medi­caid and Medicare passed, the government has paid (inadequately) for most expensive long term care (in nursing homes). CLASS will lead careless consumers to believe a risk they didn’t think they faced anyway has been further reduced by yet another government program, one that pays for home care (they want), not just for nursing home care (they’d rather avoid).

But smart consumers will see through the CLASS Act’s smoke and mirrors. They’ll realize private long term care insurance is their last best hope to ensure access to quality long term care when they need it and in the best, most appropriate setting. [SAM]

Allen Schmitz, FSA, MAAA, is a principal and consulting actuary in the Milwaukee office of Milliman, Inc.

He can be reached at 15800 Bluemound Road, Suite 400, Brookfield, WI 53005. Telephone: 262-796-3477. Email:

FSA, MAAA, is a consulting actuary specializing in the long term care and accident and health industries. Currently he serves as the chairperson of the LTC Industry Think Tank, which is jointly sponsored by the LTC insurance section of the Society of Actuaries and the Intercompany LTC Insurance conference board.Schoonveld can be reached by telephone at 508-339-4718. Email:

Gelbwaks Insurance Services, Inc.

Gelbwaks Gewirtz is a 1992 graduate of the University of Florida with a bachelor of science in advertising. She has been in the business for 18 years and is vice president of marketing at Gelbwaks Insurance Services, Inc., which is a nationally recognized leader in the LTC insurance industry as well as a founding member of the National LTC Network. She is a Florida state certified instructor for long term care insurance continuing education and has organized LTC insurance symposiums and regularly teaches advanced LTC insurance workshops for agents. She has contributed to the development and product design of LTC insurance plans in the marketplace today and has been a guest speaker on product design and pricing for several national teleconferences as well as many national conferences throughout the country.Gelbwaks Gewirtz can be reached at Gelbwaks Insurance Services, Inc., 10051 Northwest First Court, Plantation, FL 33324. Telephone: 800-826-1686, extension 103. Email:

Stephen A. Moses is president of the Center for Long-Term Care ( The Center promotes universal access to top-quality long term care by encouraging private financing as an alternative to Medicaid dependency for most Americans. Previously, Mr. Moses was president of the Center for Long Term Care Financing (1998-2005), director of research for LTC, Inc., (1989-98), a senior analyst for the Inspector General of the U.S. Department of Health and Human Services (1987-89), a
Medicaid state representative for the Health Care Financing Administration (1978-87), a HHS Departmental Management Intern (1975-78), and a Peace Corps Volunteer in Venezuela (1968-1970). He is widely recognized as an expert and innovator in the field of long term care.

He completed the “2008 National Long Term Care Consciousness Tour” traveling for a year and 28,028 miles while living in an Airstream trailer dubbed the “Silver Bullet of Long Term Care.” The LTC Tour promoted responsible long term care planning and rational long term care public policy.

Moses can be reached at the Center for Long-Term Care Reform, 2212 Queen Anne Avenue North, #110, Seattle, WA 98109