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Plan Well, Retire Well

Saving and investing your money

A New Long-Term Care Financing Option: The CLASS Act

Working age people will have a new long-term care insurance option to consider beginning in fall of 2012, as a part of the health care reform law signed by President Obama in March 2010. The law includes a voluntary employment-based insurance program for the purchase of community living services (long-term care services) and for the payment of institutional long-term care services. The program is called the Community Living Assistance Services and Supports program (CLASS Act).

While many of the details (premium levels, benefit levels, and other details) are to be developed and announced by October of 2012, here are some of the main components of the program:

WHO? Working adults can participate in the program (or opt-out of the employment-based program), spouses of working people can participate if they meet the eligibility criteria, and self-employed people or people who work for an employer that does not offer the CLASS program can participate through an alternate sign-up method.

HOW? CLASS will be financed by voluntary premiums paid by payroll deductions or direct payments from individuals. Workers of a participating employer will be automatically enrolled in the program unless the employee opts out. A "Life Independence Account" for each participant will be established and administered by the Federal Department of Health and Human Services as a stand-alone insurance program. Taxpayer funds are not to be used in the payment of benefits. The CLASS program would be the first payer for individuals who also qualify for Medicaid program benefits. Persons interested in additional long-term care financing protection would be able to purchase insurance in the private long-term care insurance market. Premiums at this point are expected to be in the range of $120 per month on average.

WHAT? Benefits are planned to average about $75 per day, and the exact amount of benefit paid would depend on the degree of loss of physical or mental function. Benefits will be paid as cash benefits to the participant depending upon level of impairment. Participants will be required to pay-in the program for five years before becoming eligible for benefits, meaning that the first program benefits would be seen in 2017. Thus, this program will not benefit people who are currently retired or disabled and unable to work. The program is envisioned as a supplement to existing long-term care insurance coverage in order to allow people with physical and cognitive impairments remain independent.

More details on the program as it currently stands are available at the Kaiser Family Foundation website in their fact sheet titled "Health Care Reform and the CLASS Act."

The key question for people planning for their retirements and for their future financial security is whether or not this program is worth it. Should a person remain in the program if their employer participates? Should a person join the program individually if their employer does not participate? How does this compare with other long-term care financing options, especially given that most people are not purchasing private long-term care insurance at this time? The answers to these questions will not be very clear until the program details are available. At the least this program offers a new long-term care financing option to help bear the financial risk of impairment in later life. Stay tuned for more discussion and analysis as the details of the program become clear and as workers need to make participation decisions.

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