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29 March 2010

ObamaCare Long-Term Care Withholdings

One of the little-discussed provisions of ObamaCare is that beginning in 2012 money will be automatically withheld from your paycheck for long-term care.  The amount has not been decided, but numbers from $146 per month to $240 per month are being discussed.  It will be possible to opt out of this plan, but we do not yet know how difficult or easy that may prove to be.

I am a bit puzzled at the numbers being discussed here.  Then again maybe I am not.  My wife and I started paying for long-term care insurance just a few years ago and the amount we pay was a function of how late in life we began paying for it.  The average worker is surely much younger than we were when we started paying for this insurance, so one would think they would pay less than we are paying.  But, what we are paying is about equal to the $146 per month figure.  So why would the government withholding be so high?

I suspect the answer lies in the supply and demand expected.  First, many Baby Boomers will eventually need long-term care and when that wave hits the limited supply of long-term care providers, costs will go way up.  Second, this program of automatic withholdings will likely also increase future demand greatly for long-term care.  So, the government must plan for major future cost increases for long-term care.  But, nobody can reasonably pretend to predict now what that care will cost given the new uncertainties introduced by ObamaCare.  I expect our insurance will become quite the bargain given how much ObamaCare will increase the costs.  Of course, that may bankrupt our private insurance company and be a disaster for us.

Will the people who are put on the ObamaCare long-term insurance plan be doing so in the same way that people are put on Medicare and Social Security?  That is, is this a plan in which they have no right to expect benefits and those benefits may be taken away at the whim of Congress?  Is this another Ponzi scheme?  Or will the government actually invest their money for their future use?  Given that this is a Democrat plan, I expect they will use the money for current expenditures on the general budget and write IOUs to be redeemed later when the government has no expectation of being able to honor them or can attempt to do so only in the midst of huge deficits due to Medicare, Medicaid, and Social Security.  Good luck with that "investment" scheme.

Postscript Summarizing the Comments below of Scott A. Olson, a professional long-term care insurance seller with 15 years experience and licensed to sell long-term care insurance in 37 states:

The CLASS Act long-term care insurance will allow people with any health history to have long-term care insurance.  It will cost people below the poverty level income only $5 per month.  The plan is operated with a "trust fund" similar to that of the Social Security program.


Scott A Olson said...

There are 2 main reasons the projected premiums for the CLASS Act are much higher than a comparable long term care insurance policy.

1) Anyone who is working can enroll in the CLASS Act regardless of health history. Someone with the early stages of MS or Parkinson's and other chronic illnesses can participate in the CLASS Act (whereas they would not be able to qualify for long term care insurance.)

2) Those who earn less than the federal poverty level will be able to enroll in the CLASS Act for only $5 per month. Their premiums are being subsidized by the rest of the enrollees.

The CLASS Act's $50 per day "average benefit" will only cover a small portion of the $75,000+ per year most Americans pay for in-home care. Most people who want to protect their savings will still need to purchase long-term care insurance to supplement the CLASS Act benefit.

One of the biggest problems we face is that most Americans still think that Medicare or their medical insurance covers the cost of long term care.

The CLASS Act addresses this problem by making a very clear statement: You have to pay for your own long term care. You either have to pay for your own long term care by using your savings, the $50 per day CLASS Act benefit, long term care insurance, or a combination of these.

Most of the ten million Americans who own long term care insurance, own it because they've seen friends or family have to spend down their assets before qualifying for Medicaid. The CLASS Act will help alert the rest of the country to the fact that they need to financially plan for their future long term care needs.

Scott A. Olson

Charles R. Anderson, Ph.D. said...

Thanks for your professional comment Scott Olson. It is not easy to get the details on the recently passed legislation yet, so your information is quite helpful.

Obviously, I think long-term care insurance is a good idea, but I do not like the strong-arm tactic of having government withhold money from everyone's paychecks in order to tell them that they must pay for their long-term care insurance. The next logical step will be for the government to withhold money for our food and shelter and clothing, to tell us that we must pay for them.

The responsibility for educating the People about long-term care insurance is that of professional insurance providers such as yourself. That is not a government responsibility and surely is not covered by any power given to the federal government by the Constitution.

You did not address how the actual service is to be provided to those who pay for it under ObamaCare. Is the money to be withheld transferred to insurance providers such as yourself? Or is this to follow the pattern of Medicare and Social Security?

Scott A Olson said...

Mr. Anderson,

You asked, "You did not address how the actual service is to be provided to those who pay for it under ObamaCare. Is the money to be withheld transferred to insurance providers such as yourself? Or is this to follow the pattern of Medicare and Social Security?"

The CLASS Act is a new government program. It will be run similar to Social Security, with the creation of a new government "trust fund". The CLASS Act will be administered completely by the federal government. Insurance companies will not be involved in it.

Many in my industry were opposed to the CLASS Act. I was not opposed to it because:

1) It will be a help to those who are not able to qualify for long term care insurance. I get calls from people everyday who want long term care insurance, but they were just diagnosed with Parkinson's or M.S. and they can't qualify for long term care insurance. So, at least the CLASS Act could be of some help to those individuals.

2) For those who are healthy enough to qualify for long term care insurance, I think the CLASS Act will be helpful in that it will raise the awareness of the need to plan for future long term care needs. Many people don't want to think about the possibility of needing long term care. When they hear about the CLASS Act program they will be forced to think about it a little bit.

For those who are healthy, they'll be able to get much better benefits with long term care insurance, rather than the CLASS Act program.

Scott A. Olson

Charles R. Anderson, Ph.D. said...

Thanks again Scott Olson for your clarifications on the CLASS Act. It is important to know that this is another Social Security "trust fund" instance in which there is no future guarantee of benefits and whose funding is to be added to the huge deficits the government plans to run for the duration of our children's lives.