CLASS Act: A Survey of Employer and Consumer Perceptions · John Hancock sponsored a survey conducted by Mathew Greenwald & Associates in 2010 to learn more about how consumers and

CLASS Act: A Survey of Employer and Consumer Perceptions

LTC-6032 12/10

Summary and Key Findings Fall 2010

1.

PrefaceIn March 2010, the Community Living Assistance Services and

Supports (CLASS) Act was passed as a provision in the new health

care reform law (the Patient Protection and Affordable Care

Act). This new program allows for the creation of a voluntary

government plan that provides some long-term care coverage.

While the program is still under review and refinement by the

Department of Health and Human Services, and is not expected to

be finalized until 2012, publicity about the CLASS Act is beginning

to pick up. As time goes on, we expect consumers and employers

will be forming opinions of the CLASS Act, and making decisions

accordingly. We wanted to take an initial read of their perceptions

and views on the need for long-term care, the financial aspects

of paying for it, and provisions of the CLASS Act and of private

insurance. We hope you find this information to be valuable.

1. Congressional Research Office, Community Living Assistance Services and Supports (CLASS) Provisions in the Patient Protection and Affordable Care Act (PPACA), May 2010.

2. Richard S. Foster, Chief Actuary (January 8, 2010) Estimated Financial Effects of the “Patient Protection and Affordable Care Act of 2009,” as Passed by the Senate on December 24, 2009, p.14.

✔Program Timing The CLASS Act is not expected to be

operational until 2013, as the plan details and administrative infrastructure still need to be developed by the Department of Health and Human Services.

✔Program Eligibility •Coveragewillbeofferedthroughemployers

toactivelyworkingpeople.

•EmployerswillbeallowedtooptoutoftheCLASS Act program.

•Participantsmustbeatleast18yearsoldand actively employed at time of enrollment.

•Entranceintotheplanisguaranteedifparticipants meet eligibility criteria and pay the required premiums.

✔CLASS Premiums •Premiumswillbepaidbyplan

participants — not taxpayers.

•Premiumsforparticipantswithincomeunder the federal poverty level and for studentswillinitiallybe$5permonth.

•Althoughfinalpremiumshaveyetto be determined, it is estimated that initial average monthly premium levels could range from$1231–2402.

•Thelawpermitspremiumstobeincreasedyearly to ensure that the CLASS fund is actuarially sound.

✔CLASS Act Benefits The CLASS benefit plan has not been defined,

althoughthelawprovidesthatthecashbenefitcouldbeaslowas$50perdayonaverage.Benefits are paid for as long as care is needed andwillincreaseeveryyear,basedontheConsumer Price Index for All Urban Consumers.

✔Benefit Eligibility and 5-Year Vesting Period

Participantswouldneedtopaypremiumsinto the program for five years and must earn wagesforatleastthreeofthoseyearsbeforethey could be eligible for benefits. This means itisunlikelythatanindividualwouldbeableto access benefits before 2018, even if he/she wouldotherwisemeetthebenefiteligibilitycriteria.Participantswouldneedtocontinuepaying premiums thereafter to remain eligible for CLASS benefits.

Aparticipantmustalsohaveonethefollowingfunctional limitations (as certified by a licensed health care practitioner), that is expected to last for a continuous period of more than 90 days:

•theinabilitytoperformatleasttwoorthree of the activities of daily living (eating, bathing, dressing, continence, toileting, andtransferring)withoutsubstantialassistance from another individual (a final determinationofwhethertheminimumrequirementwillbetwoorthreeactivities of daily living has yet to be made);

•theneedforsubstantialsupervisiontoprotect the individual from threats to health and safety due to substantial cognitive impairment;

•a level of functional limitation similar to that described above

An overview of the CLASS Act (as of 12/10)

2.

Background and methodologyJohn Hancock sponsored a survey conducted by Mathew Greenwald & Associates in

2010 to learn more about how consumers and employers view the government created

long-term care assistance program, the Community Living Assistance Services and

Supports (CLASS) Act, as well as their attitudes about private LTC insurance.

Study objectives■ Determine the reactions to the CLASS Act program and its provisions

■ Find out the likelihood of offering/participating in the program

■ Explore attitudes toward private LTC insurance coverage

■ Assess the public’s awareness of long-term care issues

Research designJohn Hancock engaged Mathew Greenwald & Associates, Inc. to conduct a survey of

300 employers and 300 consumers to assess their knowledge and perceptions of the

CLASS Act.

■ Conducted online interviews (15 minutes each)

■ Each respondent was given a description of the CLASS Act program (see Appendix)

■ Consumers had to be actively employed

■ Employers must have at least 10 employees with an average annual salary of at

least $25,000

■ Representative sampling of employers of all sizes, included companies with:

— 10 to 19 employees (50)

— 20 to 99 employees (100)

— 100 to 499 employees (100)

— 500+ employees (50)

consumers & employers surveyed

600

3.

Foundedin1985,MathewGreenwald& Associates is a full-servicemarketresearch firm withabreadthofcapabilities and unique industry expertise in financial services and retirement topics.

4.4.

Survey highlightsAs the CLASS Act program rules are established and the final plan design is announced

in the next couple of years, you will likely receive inquiries from existing and potential

clients about what option is best when planning ahead for long-term care. This survey

confirmed that both employers and consumers need further education on the details of

the program as well as how it compares to private long-term care insurance. A summary

of survey highlights follows:

Lack of awareness is widespread, reactions to provisions are mixed there is a general lack of knowledge about the public program, with only 35% of employers and 8% of consumers aware of the cLass act program. and while both groups showed an initial liking for the program, after learning more about the specifics, there were many who viewed it less positively.

Positive reactions for the CLASS Act provisions Employers Consumers

Theprogramwillbefundedonlybypremiums,andnotaxdollarswillbeusedtosupporttheprogram

74% 63%

Allactiveworkersareeligibletoparticipateintheprogramregardless of health

71 76

Thebenefitcanbeusedtopayforawidevarietyofmedicaland non-medical services

70 72

Individualsoverage65whohavepaidpremiumsfor20years and are no longer actively employed are exempt from premium increases

64 72

Concerns about the CLASS Act program Employers Consumers

The program is run by the federal government 52% 44%

Thegovernmentcouldchangethelawregulatingtheprogram at any time

87 91

The government may not be responsive 81 87

Participants must pay into the program for five years before becoming eligible to receive benefits

84 80

One-size-fits all coverage 84 80

Theminimumbenefitundertheprogramwillbe$50adayonaverage,muchlessthanwhatistypicallyneededtocoverthe cost of care

46 50

of employers areawareof

the CLASS Act program

35%

of consumers areawareof

the CLASS Act program

8%

5.

empLoyers & consumers show a preference for private Ltc insurancedespite an initial positive reaction to the cLass act program, most respondents expressed a preference for private Ltc insurance.

■ Employers believe that the majority of consumers are likely to prefer private

LTC insurance (55%) over a government run program (19%), just as they would

prefer a private policy (61%) to a government (10%) program.

■ 77% of consumers indicated a preference for private LTC insurance over the CLASS Act.

employers and consumers alike see the following as the advantages of a private Ltc insurance policy:

■ Benefits are generally available 90 days after enrolling, provided benefit triggers are met

■ A policy can be designed to suit employee needs

■ There is a choice of benefit levels that can be higher than $50 a day

■ Coverage is available for spouses and parents

empLoyers expect to take a “wait and see” approach before offering the cLass actmany employers say they will take a “wait and see” approach before making any decisions about how to change their benefit offerings in light of the cLass act program.

■ More than half of employers without an LTC insurance benefit (53%) and four in ten

with this benefit (39%) say they will likely wait for more details on the plan to emerge

before making a decision about changing their benefit offerings.

■ More than half of employers who do not currently offer LTC insurance believe their

company is likely to evaluate the government’s plan and consider participating (10%

very likely and 46% somewhat likely).

the cLass act program will also lead many employers to consider the benefits of offering private Ltc insurance.

■ Almost half (45%) without an LTC insurance benefit indicate that publicity about the

government program is likely to lead their company to evaluate private LTC insurance

and consider offering it to employees, instead of the government program.

■ 73% of employers indicate they would be likely to compare the costs and benefits

of private LTC insurance with the costs and benefits of the CLASS Act plan before

making a decision about what to offer their employees.

of consumers prefer private LTC insurance over the CLASS Act

77%

of consumers have considered LTC insurance to help pay for the cost of long-term care

43%

of employers are likelytocompareprivate insurance withtheCLASSActbefore deciding whattooffer their employees

73%

6.

consumers Lack knowLedge of cost & how to pay, but recognize need survey results indicate there is still a need for further education when it comes to the costs involved in receiving care, yet many realize the likelihood of needing care themselves or for a family member, and have considered private Ltc insurance.

consumers see a potential need for care and have preferences for where they’d like to receive it:

■ 53% believe that they themselves may need care someday.

■ Should long-term care be needed, the preference for care setting is as follows:

— 64% prefer to be at home

— 34% prefer to be at an assisted living facility

— 2% prefer to be at a nursing home

cost remains misunderstood and a concern nonetheless

■ Nearly 90% of consumers believe they or a spouse will need care and are concerned

about paying for it.

■ 76% incorrectly believe that the cost of a nursing home is less than $65,000/year.

■ 50% of consumers said they would only be able to afford nursing home care

(at $75,000/year) for 6 months or less.

of consumers indicatetheywouldcomparethe costs and benefits of private insurancewiththecostsandbenefits of the CLASS Act plan beforemakingadecision

88%

of consumers say it is important to

knowtheycan afford quality

long-term care

92%

of consumers believe they

may need care someday

53%

7.

51%of women vs. 35% of men

50%of those with incomes of $100k+ vs. 37% of those withincomesof $40–$99k

generaL attitudes toward Long-term care insurancethe detailed survey responses of the consumers surveyed may assist you in starting a conversation about the value of planning ahead. consider the following in your prospecting efforts:

Women✔ 43% have provided long-term care to a close relative

✔ 63% see themselves as likely to need care in the future

✔ 73% believe that their spouses are likely to need care in the future

✔ 90% are concerned about their ability to pay for future care

✔93% are likely to compare the costs and benefits offered by the CLASS Act and private insurance

College Educated✔ 38% have provided long-term care to a close relative

✔58% see themselves as likely to need care in the future

✔61% believe that their spouses are likely to need care in the future

✔88% are concerned about their ability to pay for future care

✔89% are likely to compare the costs and benefits offered by the CLASS Act and private LTC insurance

High-Income Earners (>$100k annually)✔ 34% have provided long-term care to a close relative

✔56% see themselves as likely to need care in the future

✔ 60% believe that their spouses are likely to need care in the future

✔89% are concerned about their ability to pay for future care

✔ 93% are likely to compare the costs and benefits offered by the CLASS Act and private LTC insurance

Employers With More Than Five Employees ✔Only 14% of those small employers surveyed currently offer LTC insurance

✔ 75% are unfamiliar with the CLASS Act

✔54% have a negative response to the program being run by the federal government

✔70% believe that publicity about the CLASS Act was not likely to cause their employees to want the company to offer the program

✔66% are likely to compare the costs and benefits offered by the CLASS Act and private LTC insurance

inclination to purchase ltc insurance:

8.

Description of the CLASS Act the following explanation of the cLass act program was presented to all survey participants:

The CLASS Act will establish a national long-term care assistance program run by

the federal government that is intended to help people pay for the cost of care when

they become functionally disabled for 90 days or longer. Employers do not have to

offer this program to their employees and do not have to pay any of the costs for

employees if they do offer the program. The program will work as follows:

• Activeworkersearningaminimumthresholdofincome,ages18andolder,areeligibleto participateintheprogramregardlessofhealth.Non-workingindividualsarenoteligible.

• Ifanemployerdecidestomakethisprogramavailabletotheiremployees,theirworkerswill be automatically enrolled in the program through a payroll deduction system. Their employees willbeallowedtooptoutiftheydonotwanttoparticipate.

• Premiumswillbeestablishedbasedontheageoftheapplicant.Whilepremiumshavenotyet beendetermined,itisexpectedthattheymaybeashighas$240permonth3.Lowincome workerswillpaynominalpremiums,startingat$5permonth,subjecttoanannualincrease forinflation.Premiumsareintendedtoremainlevel,butthelawpermitspremiumincreases iftheprogramneedsmorefunding.Theprogramwillbefundedbypremiumsandwillnotbesupported by taxes.

• Workersmustpaypremiumsforatleastfiveyearsbeforebecomingeligibleforbenefits. Alternatemethodsofpaymentwillbeestablishedsothatworkerscancontinuetopay premiums if they leave their employer. Those dropping their enrollment and no longer paying premiumswillnotbeeligibleforbenefits.

• Enrollmentsareexpectedtostartin2012or2013.

• Aminimumbenefitof$50adayonaveragethatcanbeusedtopayformedicaland non-medicalservices.Thedailybenefitamountmaybehigherorlower,dependingon functional limitations.

• Thebenefitamountwillbeadjustedannuallyforinflation.

• Thebenefitswouldcontinueforaslongastheimpairment/needispresent.

3. Richard S. Foster, Chief Actuary (January 8, 2010) Estimated Financial Effects of the “Patient Protection and Affordable Care Act of 2009,” as Passed by the Senate on December 24, 2009, p.14.

APPenDIx

9.

noTeS

4. Based on internal data as of September 20, 2010 For financial professional use only. Notforusewiththepublic. Individuallong-termcareinsuranceisunderwrittenbyJohnHancockLifeInsuranceCompany(U.S.A.),Boston,MA02117(notlicensedinNewYork)

andinNewYorkbyJohnHancockLife&HealthInsuranceCompany,Boston,MA02117. LTC-6032 11/10

About John Hancock Long-Term Care Insurance JohnHancockisoneofthelargestprovidersofLTCinsuranceto

individuals,couples,associations,andemployers.Today,wehave

more than 1.3 million4LTCinsurancepolicyholdersand$1.5billion4

of in-force LTC insurance premium. The company holds more than

$12billion4 in LTC insurance reserves for future claims and has

paid$3.2billion4 in LTCI claims.

More information about long-term care issues and insurance products

can be found at www.johnhancockLTC.com.