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No easy solution for CLASS Act

By Jay MacDonald · Bankrate.com
Tuesday, October 18, 2011
Posted: 9 am ET

Was it better to have tried to solve a conundrum like long-term care insurance and lost than never to have tried at all?

No doubt that's what the Obama administration and Secretary Kathleen Sebelius and her crew at Health and Human Services are wondering in the wake of last week's decision to shelve the search for a sustainable solution to long-term care insurance, at least for now.

The Community Living Assistance Services and Supports (CLASS) Act was perhaps the most ambitious component of health care reform. After studying LTC options for 19 months, Sebelius and team admitted they haven't cracked the code yet.

Sebelius told reporters her team was stymied in its efforts to design an independent, voluntary long-term care insurance program that would be entirely self-sustaining, meaning that plan premiums would completely cover the benefit outlay.

The problem, she says, is that to meet that goal, HHS would have been forced to set the premiums so high that few young, healthy people would dive into the (insurance) pool.

"This could have led to a vicious cycle where premiums would have to be set higher and higher to cover the likely costs of benefits, leading fewer and fewer healthier people to sign up for the program," she wrote.

MetLife, the nation's largest life insurance company, reached the same conclusion and withdrew from the LTC market last December.

The sad fact is, the cost of long-term care insurance is already beyond the means of most Americans, and as a result, the LTC market is already in a death spiral of its own. New individual policies have dropped 32 percent from 2005 to 2009, according to LIMRA, while the costs associated with assisted living are rising at an annual rate of 6.7 percent.

The industry rap on LTC is, those who need it can't afford it and those who can afford it don't need it. Add the graying of the baby boom generation to the mix and the prospect of setting accurate insurance rates is enough to drive an actuary to drink.

Sebelius et al aren't giving up however. There's a sense that this regrouping is more of a seventh-inning stretch to allow the sturm und drang of the 2012 election to pass. They should be commended for having the guts to suspend the program rather than risk failure.

Here's hoping they redouble their efforts as soon as it's politically feasible.

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