A WEBINAR PRESENTATION FOR CLTC The CLASS Act An Update on this “Little Unknown” Presented by: Pam & Tom Devine David Agency Minneapolis, Minnesota July.

A WEBINAR PRESENTATION

FOR CLTC

The CLASS Act An Update on this “Little Unknown”

Presented by: Pam & Tom DevineDavid Agency

Minneapolis, Minnesota

July 27, 2011

COMMUNITY LIVING ASSISTANCE SERVICE AND SUPPORT (C.L.A.S.S. ACT)

Patient Protection and Affordable Care Act (P.P.A.C.A)

Title VII

OverviewJuly 27, 2011

Reasons People Are Interested in LTC Planning

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They do not want to be a burden to family, friends or others

Want access to maintain control and independence

Seek asset protection so others can receive later

To have peace of mind

Overview4

“It is a National Self Funded Voluntary Government Insurance Program to facilitate personal financial independence, to provide a funding mechanism to alleviate burdens of family caregivers, which allows personal choice and independence through a new financing strategy for Community Living Assistance Services and Support Programs.”

Class Act Passage History5

Concept developed in mid 1990’sFormulation of program outlined in late 1999Proposed draft legislation early 2000’sProposal hearings 2004, 2005Kennedy last “legacy legislation”CLASS “dropped in” to P.P.A.C.A. July 2009Signed into law March 23, 2010

Program Eligibility Provisions6

Voluntary Coverage Program for “actively at work” employees 18 or older with an annual income of $1,120 or more and wages/income subject to Social Security tax withholding

Employer must “elect” to install the programAll employees are automatically “opted in”

unless, they choose to “opt out” afterwardsAll premiums are payroll deducted monthly and

transmitted to “CLASS Independence Fund”There is a set once a year open “enrollment –

disenrollment period”

CompaniesCompanies EmployeesEmployees

18,000

90,000

630,000

2 million

25 million*

over 500

100 – 499

20 – 99

5 – 19

under 4

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Target for LTC Planning Education Why CLASS Act Picked Worksite Platform

Over ½ private sector employees

*13% of Americans are self-employed

LTC Planning: Reaching People8

Generations Age Millions of People

Kiddies 1 – 12 51

Gen Y 13 – 32 76

Millennial 33 – 43 52

Boomer 44 – 63 78

Silent 64 – 83 47

GI 84+ 5

Program Eligibility Provisions9

Self-employed individuals/spouses eligible by making direct payments

There is a “coordination” feature with supplemental health coverages offered through the new “Exchanges”

Participant cannot be enrolled if in a hospital or facility

Participant cannot be confined in a penal institution or correctional facility

Participant cannot be a retireeThe program does not include enrollee’s family

members

Program Benefit Features10

Guarantee Issue: No medical underwritingCoverage for home & community care,

assisted living facility and institutional careBenefit of “no less than $50 per day”Cash BenefitLifetime coverage – no aggregate limitCPI and premium increases (decreases)

reviewed/set each year Advisory Board and HHS Secretary

The law did not include waiver of premium while on claim

Program Costs11

Age rated premiumsBeginning first year/thereafter, all premiums paid by

enrollee’s are based on actuarial cost analysis on 75 year projected program

Those who “Opt Out” after 1 year: Pay more Those who “Opt In” after 5 years lapse: Pay attained

age plus 1% penalty65+ no longer employed, who paid 20+ years, do not

pay annual premium increases or CPI premium increases

“Nominal” premium for those below poverty line or full time students: $5/month

Prohibition of use of Taxpayer Funds to pay claims/program costs

Claiming Program Benefits12

5 year vesting/waiting period deductible before any claims payments can be made

Must have paid premiums most recent 2 years to receive benefits

Limited benefit or no less than $50 per day Expected: Functional limitations – HIPAA claim trigger Undetermined: 2 or 3 ADL’s on HIPAA trigger Or…severe cognitive disability or needing hands on or other

assistance – expected to last 90 or more days Cash benefits paid daily or weekly – electronically – into

new claimant individual “Independence Accounts” Payments are tax qualified (TQ) expected to be:

“Partnership Protected” Year end lump sum forfeitures possible if left in account Eligibility determined by “state disability determination

centers”

Program Administration Governance of Funds

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Secretary of Department of Health and Human Services in charge Program start date: January 1st, 2011 New “CLASS Independence Advisory Council” to advise by

October 1st, 2012 on plan election options, actuarial reporting, plan designs, benefits/features

Council to take “public comment” for 90 days beginning on October 1st, 2012, final decisions expected by January 1st, 2013

Specifics of plan details, in particular premium levels, have to be determined by “Advisory Council” approved by HHS Secretary January 1st, the 2013 expected plan start up date.

Creates new “CLASS Independence Fund” to hold premiums paid New “CLASS Independence Fund Board of Trustees” to

advise/manage/funds/assumptions/review/report First annual report due by January 1st, 2014 Role of Inspector General of HHS to review: waste, fraud and

abuse Admin costs capped at 3% of total first 5 years, after cannot

exceed 5%

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“The CLASS Act needed Congressional Conference Committee hearings more than any other provision of the Patient

Protection and Affordable Care Act”

“Ensure” Solvency Over 75 Year Horizon“Ensure” Solvency Over 75 Year Horizon

Overpriced: Only less healthy and subsidized buyers Unmanageable spread of risk increases

Underpriced: Solvency cannot be achieved Factors of voluntary structure impacted – more sign up Adverse selection spiral happens

Subsidized: below poverty level – full time students Subsidized by other CLASS program buyers, not all

taxpayers Program buyer pay more initially and have greater shares

later if increases occur

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Pricing

Actuarial Soundness16

Considerable public input over the last 10 years on adverse selection issues noted with Kennedy program

If program does not attract reasonable spread of risk it cannot sustain itself without significant pricing increases or future subsidizes from somewhere

Lifetime benefits and cash payments are popular but private insurer experiences to date indicate adverse claim experience. This contributed to claims abuse problems.

Key is for balance in terms of plan design, premium and common features to prevent adverse selection

Other Program Modeling Risks17

Initial under estimated benefit cost projectionsEnvironmental changes like lower interest rates,

increases in longevity, more claims than expectedPolitical forces enact or direct increases in benefits

or a decrease in premiumsCLASS funds diverted for other usesInter-related nature of unexpected changes in

Social Security, Medicaid, Medicare or other programs

Other unidentified future unintended consequences

Class Is Intended To18

Help people stay independent at home, longer

Build supportive service infrastructuresAlleviate family caregiver burdensReverse Medicaid’s institutional biasEncourage people to start insuring at

younger age

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“Boon or Doom to LTC Planning”

Proponents20

Help people be able to stay independent at home – longer – where they want to be

Build supportive community based service infrastructure

Alleviate family caregiver burdensAddresses Medicaid institutional biasProvides coverage to working uninsurablesEncourage people to start insuring at younger agesBroadens LTC awarenessCLASS and private market participation will lead

country to be better prepared for LTC issues

Market Place Impact of CLASS21

Leverage opportunities of government marketing

Increase awareness for LTC planningCLASS itself encourages employers to

consider offering a private LTCi plan – even if they don’t offer CLASS

Private LTCi: Financially easier sale in CLASS environment for

healthy individuals and couples

Opportunities to help uninsurables

Opponents22

Adverse selection in a voluntary guaranteed issue program because of the inability to strike a balance with participation, eligibility, benefits and cost structures

Lack of checks and balances within CLASS with political appointees making all operating decisions of program

It is a “Program” without contractual guarantees of a private “Contract” complying with NAIC standards

CLASS purchasers may assume they are “fully” covered by the time they need to begin claim

Consideration23

“Was the original concept of the program set up to fail – with the future expectation to eventually have all employers match their employee’s payroll deduction contributions ‘up the road’ to make the CLASS program really work?

This was stated in the Mid – 2000’s hearings.

Impact of Employers24

Employers (ER’s), overall are increasingly, negatively impacted by employee’s (EEs) caregiving burdens

80% of EE caregivers come late or leave early

10% of EE’s shifted to part-time work15% pass up promotions or quit25% miss out on transfers or relocations22% were unable to acquire new job skills

Impact of Employers25

34 million EE’s provide care for parents 50 or older

EE caregivers cost ER’s about $3500 per yearAlzheimer’s disease cost ER’s alone more

than $33 billion annually in lost productivityParent Care: One of the fastest growing uses

of the Family Medical Leave ActCompanies with 50+ EE’s are required to

provide 12 weeks per year of unpaid leave

CLASS Impact on Employers26

Knowledge of five dates/deadlines: CLASS program start date: 1-1-2011 Eligibility assessments due: 1-1-2012 Plan studies due to HHS Secretary: 10-1-2012 Public: “Open Period” hearings – 90 days Expected plan start up date: 1-1-2013 Required first Annual CLASS Act Report: 1-1-2014

CLASS Impact on Employers27

Employers will be faced with making a series of decisions: Evaluate Pro-Con of installing new CLASS

Government Program Continue/install new private pay LTCi employee

benefit plan Do nothing and hope for the best

CLASS Impact on Employers28

Dealing with employees asking about new CLASS program prior to 2013 start date

EE anger and lost productivity due to automatic deductions with “Opt In”

ER need to gather and present information about CLASS to EE’s

Employers with plans in place will need to be in position to explain existing Plan along with Options/Alternatives

Employee Impact29

Responsibility to become familiar with CLASS program, provisions and need to make an informed “yes or no” decision about staying enrolled if employers elect program

Responsibility to dis-enroll during “set enrollment period” if not desiring program

Change of heart or financial turn of events outside of open enrollment period

What Could Help CLASS Sustainability?

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Review “actively at work” requirements; add “unconfined” and “able”

Later, increased “stepped” premium optionsReview government/medicare-medicaid

requirements for keeping people at home and using family caregiving

Legislation to secure all “CLASS Trust Funds”

Attract younger buyersAdd eligibility of spouses/partners

What Could Help CLASS Sustainability?

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Re-evaluating who is subsidizedSet pricing by income level – like Social SecurityMandatory participation in base plan for all EE’s

if ER elects programChange from “program” to “contract”Profile “acute medical care coverages” as part of

CLASS presentationsCoordination with “spend down” and state

“Partnership” programsBroad educational outreach to increase

awareness of LTC and LTCi planning

What Could Help CLASS Sustainability?

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Elimination period option added after 5 years of premium payments

Takeaway/reduce Lifetime Benefit Period optionDetermine accurate, reasonable spread of risk

issues to sustain the planAggressively determine if a balance can be

found in plan design, premium and participation that will control adverse selection

Use stricter ADL requirementsCombine cash payment with eligible proof of

claim

CLASS Act Program Disclaimer33

CLASS Act is the law. However, political pressures on political appointees selected to advise and administer the program are untested. Uncertainty, in many aspects of the program remain. They are, but not limited to plan design, eligibility, actuarial work, participation estimates, costs and other undefined details including legal contests. All present clear challenges for both employers and employees considering the new program

Possible Fallout From 2012 Elections34

Key program start dates fall just prior to the fall 2012 election date

Major decisions of programming plan, design, pricing and implementation all take place either prior to or during the “lame duck” period

Impact of Executive Orders or possible pending legal contests could impact start up timelines

Conclusions and Challenges35

Sadly, pre-tax LTCi: 125 was left out. Further, significant education can still take place by employers not electing to install the CLASS program. This needs to be done.

Significant public awareness needs to continue to address the financial and social issues of LTC planning and LTCi

Conclusions and Challenges36

Finally… CLASS messaging is clear: The Government wants to

significantly shift spending for LTC expenses to individuals to their taking personal responsibility in their own planning, much like 401(k) education/planning/financing

Recognize increasing Federal cost factors impacting Medicaid, State financial constraints to make up differences which are passed to Counties, who’s lack of funds , which must be made up with increases to either/both Residential Property Taxes, Commercial Industrial taxes to cover shortfalls.

There is a need for wide spread employer and employee education on LTC planning and LTCi

The government was correct in targeting employers for the CLASS program. Wide spread education can take place using the workplace platform for distributing their intended messaging

FOR ADDITIONAL FOLLOW-UP, PLEASE CONTACT:

Tom Devine phone: 952-277-0670email: [email protected]

Thank You For Your Attention!