Federal Long-Term Care Insurance Plan Is Short-Term Solution
Senator Edward Kennedy (D, MA), chairman of the Health, Education, Labor and Pensions (HELP) committee, has indeed sparked an important debate over long term care insurance by proposing nationalized coverage for all Americans. The Kennedy plan, also referred to as the CLASS Act, is highly attractive to legislators. As structured, the result would produce about $58 billion in revenue for the government over the next 10 years, according to the Congressional Budget Office (CBO).
The $58 billion in revenues coming from the national long term care insurance could be used to offset the cost of the national healthcare program which is expected to cost at least $1 trillion over the same period. Legislators must be salivating at a potential source of income with absolutely no potential for expenses for years to come.
However, the real question consumers should be asking is how much the national long term care insurance will cost me? That is a far more important and complex question that deserves far more attention than it is currently receiving.
Monthly premiums paid by individuals would account for the $58 billion. Premiums would vary by age but are expected to average about $65 per month ($780 a year). Under the proposed program, no one would be eligible for benefits until they have paid premiums for five years - a reason the CBO estimates the program would net revenue for the government for its first 10 years. The CBO generally does not estimate the cost of programs beyond 10 years, the period covered by procedural "pay-as-you-go" rules requiring legislation to be budget-neutral.
"First, when has a government entitlement program accurately estimated income and projected expenses?," states Jesse Slome, Executive Director of the American Association for Long Term Care insurance, the industry's trade organization. "The CBO already estimates that premiums will be insufficient and will likely need to be increased to maintain the program's solvency. The government already runs a disability insurance program through the Social Security Administration, but it is very difficult to qualify for that program and there is a backlog of people who have appealed Social Security's initial decline of their benefits."
Indeed, recently the Congressional Budget Office projected the more likely premium would be in the $100 to $110 per-month range ($1,200 a year). "For $1,200 a year, an individual can currently purchase long term care insurance that will pay many times the benefit proposed by the federal plan," Slome notes. "The plan will be good deal for those individuals with existing health conditions that make them uninsurable."
According to the Association some 8.25 million Americans have already purchased long term care insurance on an individual basis or through their employer. Some 400,000 new policies are now sold each year, as more people understand the need to plan for the risk of needing care. Millions of others will be able to use the built-up value of their homes through a reverse mortgage.
"Another underfunded entitlement program where the real cost won't be known for 10 or more years simply shifts the financial obligation to the next generation," Slome notes. "That's long term care planning of the worst kind."
The American Association for Long-Term Care Insurance is the national trade organization providing consumers with relevant and current information designed to help you make smarter decisions.
Written by Jesse Slome of AALTCI