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Although it hasn’t received much attention, a provision in the federal health care reform creates a voluntary national insurance program for long-term care. This program, known as the CLASS Act, provides individuals with a cash benefit if they have a functional limitation or disability. The intent behind the CLASS Act is to provide additional options for people who need assistance in paying for long-term care services. The CLASS Act became effective on January 1, 2011, though details of the program, including regulations, haven’t been released. The program will not be operational until such regulations are issued. The government is required to release details on the program by October 1, 2012 at the latest.


Who is Eligible for Benefits?

An eligible beneficiary must be actively enrolled in the CLASS program and have a functional limitation, i.e., the inability to perform activities of daily living (e.g., eating, toileting, transferring, bathing, dressing, continence). In order to receive the benefits, an eligible beneficiary must have paid monthly premiums for at least five years and have been employed during three of those five years. No underwriting based on preexisting conditions can be used to prevent an individual from enrolling or to determine monthly premiums.


Is the CLASS Act Right for my Employer?

Maybe. More than 10 million people need long-term service to assist them in life’s daily activities. The CLASS Act allows working adults to plan for these future needs and will likely reduce reliance on Medicaid while providing relief for family caregivers. However, you have to pay into the program for 5 years before you can collect a benefit. Since the program is not operational yet, the earliest payout date would be 2017.


Are there Alternatives to the CLASS Act?

Yes! While some carriers have exited the LTC market, several carriers still offer group Long Term Care policies. Even groups with less than 50 employees can offer coverage on a guarantee issue basis if structured properly. One of the biggest benefits to private coverage is the ability to customize the coverage to meet the actual needs of the insured.


Who is Eligible to Enroll?

Working adults are eligible to enroll in the CLASS program. Under the reform, a “working individual” is someone who is:

• At least 18 years old;

• Receiving wages or derives self-employment income;

• Actively employed; and

• Not a patient in a hospital or nursing facility, an intermediate care facility for the mentally retarded, or an institution for mental diseases and receiving medical assistance under Medicaid, or confined in a jail, prison, other penal institution or correctional facility, or by court order pursuant to conviction of a criminal offense or in connection with certain verdicts.

If an employer chooses to participate in the program, it must automatically enroll individuals; however, individuals may opt out of the enrollment. If enrolled, premiums are deducted from participants’ wages by the employer (self-employed people or those whose employers do not offer the CLASS program will be able to enroll through an alternative enrollment mechanism). The law explicitly states that no taxpayer funds can be used for payment of benefits – the program is solely financed by premiums paid by individual enrollees.

Premium payments will be placed in a “Life Independence Account” on behalf of each eligible beneficiary and federally administered by the Department of Health and Human Services as a new insurance program. Premium amounts will be determined by the government each year based on an actuarial analysis of the 75-year costs of the CLASS program that ensures solvency throughout such 75-year period. Younger participants will pay less than older participants, and those below the federal poverty level and full-time students who are actively employed will pay nominal amounts, starting at $5 per month. The amount of monthly premium shall remain the same unless the government determines that it must be adjusted if required for program solvency.


What are the Benefits?

The program provides a basic cash benefit to those who meet the requirements. The amount of the benefit will be paid on a daily or weekly basis, varying based on the severity of the impairment or disability, and will average no less than $50 per day, as indexed. The cash benefit will continue for as long as an individual meets the eligibility criteria and must be used to purchase non-medical services and supports necessary to maintain independence at home or in another residential setting in the community (e.g., home health care, adult day care, assistive technology, home modifications, personal assistance services, respite care, accessible transportation and homemaker services). The cash benefit will be posted to a debit account available for withdrawals and eligible beneficiaries can choose to defer payment of daily or weekly benefits and rollover such deferred benefits from month-to-month (but not year-to-year). The benefit is not subject to any lifetime or aggregate limit. Eligible beneficiaries can also receive benefits as a lump-sum payment before the end of the 12-month period in which such benefits accrued. Once an individual becomes ineligible for benefits, for example, by improving in functional status or death, the benefits end and any balance remaining on an individual’s account will not be payable. The government shall recoup any accrued benefits in the event of the death of the beneficiary or the failure of a beneficiary to elect a lump sum payment before the end of the 12-month period in which such benefits accrued.


Coordination of Benefits

CLASS works together with other long-term services and support programs such as Medicaid. Eligibility for CLASS benefits does not affect eligibility for Medicaid, Medicare, Social Security retirement, survivors, or disability benefits or Supplemental Security Income (SSI) benefits. Since Medicaid is generally a secondary payer, subject to the Medicaid payment rules, benefits received by an eligible beneficiary will supplement, but not replace other health care benefits for which the beneficiary is eligible under Medicaid or any other federally funded program that provides health care benefits or assistance.


Are the Benefits Taxable?

The CLASS program shall be treated for purposes of the Internal Revenue Code in the same manner as qualified long term are insurance contracts for qualified long-term care services, and are generally not taxable.


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