There have been many conversations of late about the CLASS Act and it's impact on long term care & long term care insurance: what it means, what it will do to premiums, when it go into effect, etc. The folks over Center for Long Term Care Reform just happened to write about this very topic, so we thought we'd share a short blurb from their website:
This was a question they received:
"In January of 2011, the government will start taking between $150-$250 out of our paychecks every month. And, not to worry, there is no discrimination here. ALL of us will be taxed on this one. Rich, poor, everyone except people who don't have a job, is included. If you have a job and get a pay check, the government will take this tax from you. Just to clarify, this is not a fee per household. It is a payroll tax deduction PER PERSON."
Here is the reply:
"OK, let's clear this up. First of all, nothing will start January 1, 2011. That's just an effective date. No real plan is due until October 1, 2012.
"Secondly, no one knows what the premiums will be. That all depends on what CLASS can afford and still remain 'actuarily solvent' for 75 years.
"Regarding participation, employers may opt to automatically deduct CLASS premiums on behalf of the government. They don't have to. I think most won't.
"For employees of companies that opt not to enroll employees and for the self-employed, the government has to come up with alternative methods to 'automatically' opt them in. No matter what, anyone and everyone may opt not to participate in CLASS.
"CLASS is to be fully funded by participants' contributions. No government money will be used. That's in the law. But it is misleading. Because every penny CLASS collects will go to fund current government expenses, the only 'reserves' CLASS will retain will be IOUs, i.e. bonds, showing that the federal government borrowed the money.
"When it comes time for CLASS to pay claims, say in seven or eight years, as it will be 2013 before it starts and another five years before any claims are due, where will it get the money to pay? By cashing the bonds, which means the federal government will have to raise the funds, through extra taxes or printing money or borrowing more, to pay the CLASS claims. So much for the promise that no government funds will be used.
"But not to worry, this boondoggle will collapse of its own weight long before any of that comes to pass."
What are your thoughts on CLASS Act? Do you believe the government will be able to replay claims when they start rolling in? Please share your comments!