Why are the CLASS Act premiums projected to be so much higher than traditional long-term care insurance?
The Healthcare Reform bill (PPACA) requires that the CLASS Act program be actuarially sound and not funded by taxes. All benefits must be paid from the premiums of the participants in the program. No taxpayer funds will be used to pay the programs benefits, nor will any taxpayer funds be used to promote or administer the program.
The premiums that have been projected for the CLASS Act (by the Congressional Budget Office) are about twice what a comparable long-term care insurance policy would cost.
There are 2 main reasons the projected premiums for the CLASS Act are higher than a traditional long-term care insurance policy.
#1) As mentioned in a previous post, anyone who is working (even just part-time) can enroll in the CLASS Act regardless of their health history. Those who cannot qualify for traditional long-term care insurance will enroll in the CLASS Act program in large numbers. Because of their health problems, a very high percentage will qualify for benefits. To compensate for the high percentage of claims, the CLASS Act premiums need to be higher than traditional long-term care insurance.
#2) Those who earn less than the federal poverty level will be automatically enrolled in the CLASS Act for only $5 per month (unless they opt-out). Their premiums will be subsidized by the higher premiums paid by the rest of the participants in the CLASS Act program.
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