Long-Term Care and the CLASS Act…

1. Long-Term Care and the CLASS Act… What employers need to know to protect their employees and their bottom line

2. A National Challenge… Long-TermCare • Businesses • Employees • Government

3. Who needsto learn aboutLong-Term care? Everyone!!!!

4. Legislative History Health & Welfare Reform of 1996 TAX-DEDUCTIBLE premiums & TAX-FREE benefits Deficit Reduction Act of 2005 • Increased lookback period • Reduced ability to use annuities to shield assets State Partnership Programs Medicaid spend down protection CLASS Act Ted Kennedy legacy program included in healthcare reform

5. CLASS Act • Community Living Assistance Services & Supports • Information provided is based on what is currently known • Many details including the final cost of coverage will be determined by the Department of Health and Human Services

6. CLASS Act • National voluntary long-term care benefit administered through participating employers • Financed exclusively by premiums paid by participants • Premiums must be set to ensure program is viable for 75 years

7. CLASS Act • 97% of premiums collected must be used to pay claims • All employees earning wages that qualify for Social Security accepted regardless of age or pre-existing medical conditions

8. CLASS Act • Premiums automatically deducted from payroll unless employees “opt-out” • Alternative payment mechanism for those who: • Are self employed • Do not have an employer • Do not have an employer who elects to deduct and withhold premiums for CLASS

9. Implementation Timeline • January 1st, 2011 - Program is officially established • January 1st, 2012 - Eligibility requirements finalized • October 1st, 2012 - Three actuarially sound plan designs developed by Health & Human Service • 2013 – Estimated rollout to employers

10. Employers Must Decide • Participation is NOT mandatory

11. Health Insurance Limitations Levels of Care • Skilled • Intermediate • Custodial (needing help with activities of daily living – ADL’s)

12. The Gap in TraditionalHealth Coverage Skilled Care Medically needed 1st 60 Days Next 40 Days After 100 Days Not Covered Covered Intermediate Care Less frequent skilled care Covered Not Covered Custodial Care Help with ADLs or memory Not Covered

13. Medicare • Skilled care only • Medical progress continues • 3 day prior hospital stay

14. Medicaid • Pays health care for the poor (welfare) • Not “entitled” • Many must “spend down” their assets to qualify • Not a gift

15. What’s the Risk? “A study by the Department of Health and Human Services indicates that people age 65 face at least 50% lifetime risk of needing long-term care.”

16. Common Causesfor LTC Young or old, LTC insurance picks up where your health insurance leaves off. Health Conditions and Illness: • Stroke and Heart Attack • Cancer • Diabetes • Arthritis and Osteoporosis • Alzheimer’s, Parkinsons and MS Injuries from: • Auto and motorcycle accidents • Activities like skiing, horse-back riding, diving

17. A Women’s Issue According to the New England Journal of Medicine: • 1 in 2 WOMEN will spend AT LEAST ONE YEAR in a nursing home • 1 in 3 MEN will spend at LEAST ONE YEAR in a nursing home

18. Cost of Care Home Health Aid Assisted Living Nursing Homes Average Cost of Care In NJ $21.00/ hour $40,418/ year $123,005/ year Prudential Long-Term Cost of Care Study, 2010

19. Impact on Employees • Working Americans are forced to become working caregivers • Sponsored savings accumulated over a lifetime is at risk • Working age employees are generally unaware of the risk they face or planning solutions that are available while they are in good health and can be approved for coverage

20. Productivity is at Risk Almost one-fifth of U.S. workers are informal caregivers • 83% report arriving late, leaving early or taking time off during the day • 41% report having to take a leave of absence • 37% report going from full time to part time • 35% report giving up work entirely • 14% Report turning down a promotion • 12% report choosing early retirement AARP Public Policy Institute, “Valuing the Invaluable: A New Look at the Economic Value of Caregiving.” June 2007 “Employers lose an estimated $33.6 billion a year on productivity due to employee caregiving” “The MetLife Caregiving Costs Study: Productivity Losses to U.S. Business” MetLife Mature Market Institute and the National Alliance for Caregiving, 2006.

21. Working Caregivers Increase Health Insurance Utilization • Working caregivers have poorer health and more chronic conditions than their non-caregiveing counterparts • The increase in health care consumed for caregiving employees is eight percent, or $13.4 billion per year nationally “The MetLife Study of Working Caregivers and Employer Healthcare Costs,” MetLife Mature Market Institute and the University of Pittsburgh Institute on Aging, February 2010.

22. CLASS Act vs. Private Long-Term Care Insurance

23. Benefits CLASS Act Private LTCi • One plan design for everyone • Minimum average cash benefit of $50/day • Lifetime coverage • Benefit increases by Urban CPI • Benefits can be reduced by Department of HHS to ensure financial viability • Plans designed around individuals needs • Benefits available from $50 to $500/day. • Benefit periods from two years to lifetime available • Many benefit increase options including 5% simple and 5% compound inflation protection • Benefits cannot be reduced without policyholders approval

24. Underwriting CLASS Act Private LTCi • Working Americans 18 and older earning wages subject to Social Security are eligible to receive coverage regardless of pre-existing health conditions or age • Employees working full between 18 - 66 can apply with a simplified underwriting process allowing all but those with the most severe pre-existing conditions to receive coverage

25. Cost of Coverage CLASS Act Private LTCi • Age based premiums TBD but must be set to ensure program viability for 75 years based on guaranteeing coverage regardless of age, health or full time work status • Coverage subsidized for the young and poor • Originally projected to cost $30/ month premiums are now projected to be as high as $160 - $240/month • Premiums based on age at application • Discounts for good health, married people and employees at companies offering coverage • Private coverage projected to be less expensive

26. Enrollment Process CLASS Act Private LTCi • TBD • Administrative costs currently limited to 3% of premiums collected • Communications provide information to attract employees to educational workshops • Live and web based meetings provide education on long-term care and planning options • One-on-one follow up consultations help employees and family members customize solutions

27. Adverse Selection • Participation is not mandatory • Unknown educational process • GI for employees with minimum work requirements • Window for enrollment not limited - can opt-out and opt back in with GI • 75 year solvency requirement makes premiums higher • Subsidized coverage for students and those below the poverty line • Higher premiums will result in lowerparticipation

28. Insurance Death Spiral Setting premiums at a rate sufficient to cover costs further discourages persons in better health from participation and may lead to further premium increases. This affect has been termed the “Insurance Death Spiral” Richard Foster, head actuary of the Center for Medicare and Medicaid Services– November 9th, 2009

29. Vesting Period CLASS Act Private LTCi • Premium must be paid for five year before benefits can be paid • Employee must be working three of those five years • If there has been a lapse in payment for more than three months, premiums must have been paid for 24 consecutive months • No vesting period • Benefits are payable after satisfying an “elimination period” that typically range between 30 and 90 days

30. Benefit Triggers CLASS Act Private LTCi • Participants must need help with two OR three activities of daily living including eating, bathing, dressing, continence, toileting and transferring OR • When an individual requires substantial supervision to protect their health and safety due to a cognitive impairment • Same as the CLASS Act except the number of ADL’s to qualify is fixed at two

31. Future Premium Increases CLASS Act Private LTCi • Premiums can be increased by the U.S. Department of Health and Human Services based on the financial condition of the program • Premiums cannot be increased for people who have paid premium for 20 years and who are age 65 or older • Premiums are regulated at the state level • Insurers are mandated to maintain significant reserves based on the level premium accepted • Premium increases must be approved by each state for all policies in a given series

32. Tax Treatment CLASS Act Private LTCi • Premiums may be tax-deductible for individuals who itemize deductions • Benefits are received tax free • Premiums paid by employers are tax deductible to companies based on form or organization • Discrimination by class of employee is allowed • Premiums may be tax-deductible for individuals who itemize deductions • Benefits are received tax free

33. Dependent Coverage CLASS Act Private LTCi • Not available • Extended family members including spouses, parents, grandparents and in-law relationships are eligible for employer sponsored discounts

34. Comparison of Options • Risk of premium increases • GI increases risk • Opt-in / Opt-out / Opt back in increases risk • Minimal work requirement increases risk • Higher premiums for GI decreases participation of young people • Comprehensive education means better planning • Private LTCi reserves protect consumers • Insurance Commissioners protect consumers • Private LTCi more competitively priced for younger health employees

35. The Private LTCi Option • Premium discounts • Simplified medical underwriting • Education with one-on-one follow-up meetings for interested employees • Protect the bottom line

36. Solving the Problem • Closing the HOLE in the basic safety net for employees • Protecting productivity & profitability of employers • Become part of the solution