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Will the demise of CLASS be a net positive or negative for the private LTCI market?

by Malcolm Cheung, vice president, Prudential Financial

The decision by HHS to not proceed with implementation of CLASS is not a big surprise from my perspective.  As defined in the ACA legislation, CLASS clearly had design features that would have invited significant adverse selection that would have jeopardized its long term actuarial viability.  Although changes to the program could have increased its chances of success, it appears that HHS has concluded that they either did not have the authority to make those changes without new legislation, or that they did not want to risk the political ramifications (especially in an election year) of arguing that they did have that authority.  From the perspective of the private LTC insurance industry, what is encouraging in the letter that Secretary Sebelius has sent to both houses of Congress is her recognition that insurance coverage for potential LTC expenses is critical to reducing the strain that these expenses will ultimately have on state and federal Medicaid budgets, as well as important in helping Americans preserve their options when they need this care.

Unfortunately, we are losing the public awareness and education effort that would likely have accompanied CLASS implementation.  However, I expect the decision to not proceed with implementation to have a positive impact on the private LTCI market (including combination products) as those individuals who might have deferred considering private insurance to see what the CLASS program might offer may now take a closer look at private LTCI products.  However, the impact would likely be modest as I believe a vast majority of consumers weren’t even aware that CLASS was a part of health care reform.  LTCI distributors will likely use this decision by HHS to reinforce the need to consider private LTC insurance in retirement planning discussions with their clients.  Their success in leveraging this decision in their prospecting and marketing efforts, however, remains to be seen.

What do you think?  Will the demise of CLASS be a net positive or negative for the private LTCI market?

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