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Wednesday, October 26, 2011

Lessons from the Likely Demise of CLASS

Lee Goldberg, National Academy of Social Insurance

Lee GoldbergOn October 14, the Obama administration halted implementation of the new federal long-term care insurance program – the Community Living Assistance Services and Supports (CLASS) initiative, which had been tucked into health care reform legislation. It is disappointing, but not surprising that the administration was unable to design a financially self-sustaining, voluntary long-term care insurance program. The unusual legislative journey of the Patient Protection and Affordable Care Act, which had no House-Senate conference to clean up the bill, left CLASS with statutory limits that proved unworkable. Without mandatory participation or some other way of achieving near universal participation, the program did not stand a chance.

The administration’s inability to implement CLASS does not endanger the Affordable Care Act (ACA), which will still extend health coverage to 32 million uninsured people by 2016. According to the Congressional Budget Office, the ACA will reduce the deficit by $127 billion even without CLASS. The success of the Affordable Care Act depends more on how HHS uses its broad discretion to formulate rules for accountable care organizations, medical homes and state health insurance exchanges. If the administration was given as much discretion over CLASS as it has over other provisions in the ACA, the news last week would have been quite different.

In the absence of CLASS, Medicaid will continue to be our de facto long term care public policy. State Medicaid programs that require near, if not actual, impoverishment are, as others have said, like having an insurance policy with a deductible that is all your wealth.

The need for universal and comprehensive insurance for long-term services and supports remains critically important. Nursing home care costs an average of $70,000 per year. Home care costs an average of $19 per hour. Paying for either over an extended period of time is beyond the financial ability of most people.

Aging is inevitable, but the need for expensive long-term care is a risk that can be insured against. Half of individuals turning 65 will spend nothing on long term care while a little more than 5 percent are projected to spend $100,000 or more. While everyone ages, we don’t know in advance whether our long-term care costs will be negligible or catastrophic.

What are the lessons from the inability to implement CLASS?

First and foremost, there needs to be near universal participation for social insurance to succeed. CLASS was voluntary and the Obama Administration understood all too well that adverse selection would force premiums much higher than the vast majority of people would pay. As Bob Ball, one of the founders of Social Security, wrote in 1998 “a voluntary system simply wouldn’t work…With a compulsory program, the problem of adverse selection – individuals deciding when and to what extent they want to participate, depending on whether their individual circumstances seem favorable – is avoided.” Ironically, CLASS failed because it lacked the mandatory participation found elsewhere in the Affordable Care Act.

This lesson is not lost on the rest of the industrialized world. For years, the United States and the United Kingdom were the only two developed nations not to go this route. We may soon be alone. The United Kingdom is now considering caps on individuals’ long-term care expenses. Other industrialized countries appear to do a better job than we do in balancing human needs, fiscal responsibility and economic growth.

The likely end of CLASS also raises questions about the scope of benefits, the role of the private sector and personal responsibility. The analysis from Georgetown University by Judy Feder, Harriet Komisar and Robert Friedland may provide the best starting point for a discussion of future options for long term care.

As one advocate remarked, CLASS was “legislative lightening in a bottle” – a quirk of Congressional Budget Office scoring that passed unexpectedly without much public notice and thus without much public support. That was the other fundamental flaw. We must build a long-term care policy that has enough public visibility to generate support so that this doesn’t happen again. Otherwise we are like Charlie Brown kicking at the football, only to be surprised when, once again, it is pulled away.


A version of this article originally appeared in The Hill on October 21, 2011. 

Posted on October 26, 2011  |  Add your comment
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I agree with most of Lee's opinions, but not necessarily that more discretion on implementation would have resulted in a different outcome. I have been working on long-term care insurance in California, in particular the program delivered under our main government pension fund, CalPERS. despite continually restricting underwriting criteria and raising premiums, CalPERS has had significant problems developing a sustainable program. My sense from talking to private LTC insurers is that many of these insurers are restricting the product or exiting the market. I'm aiming to do a more rigorous analysis of the likely contraction in the LTC market as we proceed on the project.

I have on e quick question, if some one knows the answer: What were CBO's original 10-year projections on the impact of CLASS on the budget deficit? I remember seeing this, but couldn't find confirmation of the size of this impact on budget projections now that CLASS has been dropped.

The long-term care challenge is a big one, and NASI is certainly the forum for working through the alternatives. I look forward to a conference?

Frank Neuhauser
Executive Director
Center for the Study of Social Insurance
UC Berkeley
Frank, thanks for your comment. What I meant was that HHS may have had more luck in implementing CLASS if they weren’t so hamstrung by statutory language on key program variables like the work requirement. The chances of adverse selection would be less. But of course you right, ultimately, something like this needs to be mandatory.

Interesting your comments re LTC insurance in CA. Not surprising that increasing premiums and presumably increasing underwriting is not helping attract people. The market begins to resemble people who can self-finance! Maybe if some do exit the market, people will realize the need for a social insurance approach, at least as a base benefit.

CBO's original projections from March 2010 concluded that CLASS would bring in $70 billion over a ten year period (2010-2019). An updated analysis from February 2011 projected that CLASS would bring in $86 billion (2012-2021). Thus, based on the 2011 projection, the ACA will still reduce deficits by $124 billion over ten years (as opposed to the $210 billion with CLASS).

Hope this helps.

Lee
Long term care insurance is needed by all Americans and it also has great tax benefits.
http://www.ltcfp.com

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