Friday, April 15, 2011

Long term care, long term burden

Long term care, long term burden
By Bob Confer

Sometime very soon the Department of Health and Human Services will iron out details of the CLASS Act and submit information to employers in preparation for enrolling their employees into the voluntary program in 2012. CLASS (Community Living Assistance Services and Supports) is similar to private long-term care insurance that helps to cover the costs of professional care when one becomes frail or disabled. It can be applied to home, respite, hospice, or nursing home functions. According to the Congressional Budget Office, the enrollees will pay an average monthly premium of $123 for a period of only 5 years. The benefits will equate to $50 to $75 per day.

Because of its remote similarity to private long-term care insurance, CLASS is identified as insurance by the federal government. It is, however, anything but. True insurance requires the building of an investment portfolio that uses the premiums collected from insured parties. Those funds are put into the markets to ensure growth, which, when combined with incoming premiums, will allow the insurance company to meet its current and future benefit outlays. True insurance also survives through underwriting, a method by which insurers analyze the risks associated with certain people and activities and adjust the premiums accordingly.

CLASS doesn’t fit the bill with either of these criteria. For starters, there is no investment portfolio. It’s eerily similar to another Ponzi scheme - Social Security — which was once identified as insurance, too. Under Social Security, current payees fully subsidize the benefits of current recipients. There is not a collective investment fund that has been watching its income grow since the program’s inception in 1935. Instead, what was taken in was put into a “trust fund”, which in turn was emptied out by government expenditures. All that remains is government bonds —IOUs issued to the government by the government.

Structured in that same way, CLASS will have its own trust fund and it won’t take long for revenues to be outstripped by expenses. The average user will put only $7,380 into the trust fund. Consider what that user will take out of it: At $75 of benefits per day, that’s $27,375 in expenses per year, nearly 4 times what the user put into it. That’s just for 1 year of use. Now, imagine if the user lingers in long-term care for 10 years ($273,750) or 20 years ($547,500). It doesn’t take a professional accountant to see that it’s a financially dangerous endeavor.

Private insurance has a few hedges against such a scenario. Beyond investing, there’s the aforementioned underwriting. Those who are high risk (having a pre-existing condition or enrolling late in life) pay a higher premium. In the private sector the annual premiums vary greatly, from just under $900 for those under 40 years of age to more than $3,000 for those over 70. Further adjustments are made for risky lifestyles and ailments. That’s not so with CLASS, where everyone is treated equally while paying equally.

Private insurers also protect themselves (and their customers) by limiting the years of benefits. Depending on the amount and duration of premium payments, benefits are typically available for 5 or 10 years, with caps set on lifetime benefits.

Without such protections, the government will be forced to do one (or all) of three things in order to keep CLASS afloat: raise tax revenues, borrow money, or work with the Federal Reserve to increase the money supply to the tune of tens, if not hundreds, of billions of dollars per year.

For a nation already taxed too much to support unconstitutional healthcare programs such as Medicaid (which costs $333.2 billion/year) and Medicare (with unfunded obligations of $37.8 trillion), another bureaucracy is not the remedy for what ails us. The government should stay out of long-term care. It is totally incapable of doing what plenty of private-sector companies can and are doing to handle such business — meeting the needs of the people in a prudent and affordable fashion.

Bob Confer is a Gasport resident and vice president of Confer Plastics Inc. in North Tonawanda. E-mail him at

This column originally ran in the 18 April 2011 Greater Niagara Newspapers

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