More on CLASS

I wrote about the CLASS Act provisions last week in the News and Observer. Here is a NY Times story about CLASS. Sometimes I wonder if certain groups just think they should oppose certain things, without actually thinking much about it. Long Term Care Insurance companies have been opposed to CLASS....here is a Genworth action alert asking agents to contact Congress, etc.

The problem is that private insurance has not been able to sell a great deal of long term care insurance....less than 10 percent of persons age 55 and over. I have a paper on long term care insurance and the use of genetic markers as a potential risk adjustment/underwriting variable that is coming out in the January 2010 issue of Health Affairs, but I can't link it yet. My point here is not about genetic markers and long term care insurance, but the fact that there are all sorts of reasons that people don't buy long term care insurance that are good reasons. Put another way, the same industry that has managed to sell lots of life insurance can't sell lots of long term care insurance. I think something like CLASS could actually help boost coverage rates of private LTC insurance because (1) it helps people think about this happily avoided topic at younger ages; and (2) could let private insurance focuses on the truly big ticket costs of a nursing home with CLASS defraying earlier/lower costs that are typically community based.

In particular, the main argument against CLASS by private insurers seems to be that CLASS will give false security to people. But, now most people haven't got any insurance cover and/or lots actually think that Medicare covers a great deal of LTC.

Here are some of the main reasons that people don't buy long term care insurance.
1. premiums are low at young ages, but people don't think about LTC at young ages.
2. when premiums are low, the expected point of potential use of LTC is a long ways away. You can get a low premium at age 40, but your likely time of use of LTC insurance is 3 or 4 decades away.
3. The inflation risk of benefits to be used far down the road are extreme...and the paradox of the lower the premium at younger ages, the more extreme the time horizon problem.

*Points 1-3 are really problems with the the insurance product being sold....in short, they aren't passing the market test in large numbers.

4. Many don't have enough income to afford premiums, or enough wealth to protect to make purchas of such insurance make sense.
5. Medicaid, which serves as a de facto NH insurance insurer, with the deductible essentially being youn non housing wealth, likely crowds out private insurance.

If private insurers were selling lots of private LTC insurance, I would get their opposition to CLASS. But, given that they haven't figured out how to develop a product that lots of people want to buy, I don't see how something like CLASS wouldn't help them.