The Future of the CLASS Act and Long-Term Care

By :: March 24th, 2011

The Community Living Services and Supports (CLASS) Act is an extraordinary case study in both budget and health care politics, and in the toxic political environment in which those of us in Washington live. And it puts a critical question into stark focus:  Exactly how do we, as a society, want to provide for the care of people with disabilities or those in frail old age.  

CLASS is a national, voluntary long-term care insurance program that was buried deep within the 2010 Affordable Care Act.  The big idea behind CLASS was to take a small step towards turning long-term care services and supports from a program funded largely by Medicaid into a self-funded insurance system.  Unfortunately, this extremely important reform was very poorly designed.    

At the time CLASS passed, few paid much attention. But it has now become a prime target for those in Congress aiming to repeal “Obamacare.” The other day, Representative Phil Gingrey (R-GA) introduced legislation to abolish CLASS, calling it, “A Bernie Madoff- fraudulent investment scheme…run by the Secretary of the Department of Health and Human Services.”

Overheated rhetoric aside, critics have two substantive objections to CLASS.  They are offended that, under the conventions of budget accounting, CLASS premiums are counted as revenues that “pay for” health reform. And they fear that if the program fails as self-funded insurance, it eventually will be bailed out with general tax revenues.  

HHS Secretary Kathleen Sebelius acknowledges the program’s flaws. And she is claiming broad authority to attempt to fix an unworkable design. Unfortunately, she is in a race against time. The question is: Can she fix CLASS before Congress kills it?

CLASS'  fundamental flaw is that it attempts to accomplish two incompatible goals with a single program. It creates a new benefit for working people with disabilities and a voluntary insurance program for healthy people looking to hedge against the risk of needing long-term care (either at home or in a nursing facility) sometime in the future.  The cost of serving disabled workers will push premiums to unacceptably high levels for those looking to buy insurance.  And they'll probably decline to purchase, dooming the program to failure.

Congress could fix CLASS by following the lead of nearly every other developed country in the world and turning it into universal insurance. A mandated program could make basic long-term care coverage available to all for an average monthly premium of only about $40, according to private consultants Avalere Health. And it could cut Medicaid long-term care costs in half, by about $50 billion. However, in today’s anti-government political environment, such a step is, shall we say, unlikely.

It may also be possible to repair CLASS through a series of technical changes, all designed to reduce premiums and make the product more attractive to healthy buyers. This morning, I participated in a panel at the Urban Institute that addressed those options.  A podcast of  the event is available here.

As you consider what to do about CLASS, keep the context in mind. Medicaid now pays more than $110 billion annually for the long-term care of both the elderly and disabled.  It funds nearly half of all these services, and spends fully one-third of its entire budget on such care. By contrast, private long-term care insurance pays for less than 10 percent. And before they become eligible for Medicaid, millions of Americans go broke paying for these services out of pocket.

Even as nearly all Republicans and some Democrats in Congress try to kill CLASS, some of these same lawmakers also favor capping Medicaid’s federal contribution, which now covers about 60 percent of the program’s costs. This will inevitably result in fewer Medicaid dollars for long-term care. They are also proposing to freeze or cut a wide range of non-Medicaid benefits, such as Meals on Wheels, transportation, subsidized housing, and the like. The result: an already tattered support system for the frail elderly and disabled (especially those trying to remain at home) will become even more frayed.

That brings us back to CLASS. As poorly designed as it is, the program is an insurance-based alternative to means-tested direct spending programs that will be under growing stress in coming years.  

Medical technology is making it possible to live with disabilities for a very long time. Americans are not financially prepared to support themselves through years of care. Few save or have any interest in buying private insurance.

For those who want to kill CLASS, I have a simple question:If government assistance is not the answer, and CLASS insurance is not the answer, what is?


  1. AMTbuff  ::  4:07 pm on March 24th, 2011:

    The answer to cost-effective long-term care is the same as it has always been: reliance on family members, not paid staff. The latter will either help bankrupt the country or squeeze out valuable benefits for the poor. The country cannot afford every benefit for everyone. Even the currently promised benefits will bankrupt us without adding new ones as the Democrats did last year.

    Long-term care that would be provided by family members in 80% or more of cases is not near the top of the list of spending priorities.

  2. Michael Bindner  ::  4:07 pm on March 24th, 2011:

    First off, the House cuts will never fly in the Senate, so they need no further discussion.

    There are several possibilities. For people who need short term nursing home care, craft a governmentally gauranteed loan program to pay for these costs. I doubt that will fly, however.

    Removing Medaid from states in exchange for removing the deductibility of state income taxes has been floated by Len Burman. I think that makes sense and it gets states out of the discussion – which is a good thing.

    The aging of the population is the driver that scares people – so reverse it by increasing the child tax credit at the expense of the mortgage interest deduction, child tax exemption and property tax deduction. That should raise enough to increase the credit to $500 per month per child. Invite the states to do the same and raising children is no longer a financial burden.

    To question of CLASS rises and falls based on whether there even is private health insurance. When pre-existing condition clauses kick in, unless mandates are beefed up (politically impossible), there will be no such thing as private health insurance, as these companies will require a bailout which will amount to conversion to single-payer insurance.

    To avoid this, it is likely that the GOP will finally accept a public option because the industry will want it. This option will be financed by a broad based tax, possibly a Lawrence B. Lindsey’s Business Receipts Tax (although this won’t entirely eliminate the need for an income surtax) rather than a VAT – and it will also be the vehicle for the Child Tax Credit (which a VAT can’t do) and the continuation of the health insurance exemption. This tax will also finance what is left of Medicaid – although Medicaid could simply be shifted to the public option – as well as all taxes to support Medicare over and above premiums. Participaton would be limited to those who cannot either pay for private insurance or those denied due to pre-existing conditions.

    Here is the good part – and it is the “other option” you seek. Businesses could also get credits against the BRT for covering their retirees rather than having them use Medicare and Medicaid long term health care and by covering all employees themselves – or by hiring their own doctors and prepaying hospital and nursing home services.

    The BRT could be a tax that everyone collects but no one pays.

  3. Michael Bindner  ::  4:10 pm on March 24th, 2011:

    That is why social insurance, even if company provided is essential. What you suggest would not be a problem for my family. My brother is a doctor and there are five of us and only one parent survives. It would be an undo burden, however, on my daughter since, unlike my father, I don’t smoke and neither does my wife. When we are old and feeble, caring for us means she can’t work. Social insurance evens out the burden so that I do not get an undeserved benefit and she does not bear and undeserved cost.

  4. TRB  ::  1:17 pm on March 25th, 2011:

    I would like to know where you got your “provided by family members in 80% or more of cases” figure from. In my family which has a tradition of military service I am the sole survivor of my generation.

    Those of us who were starting families in the 70’s chose to have less children than our parents and grandparents did because (a) more of them survived to adulthood, (b) we realized that the cost of tertiary education was going to continue to rise as it became more essential to making a good living, and (c) girls were no longer expected to marry right out of high school or after the mandatory social year in college to snag a husband.

    Secondly, not everyone has children, whether by choice or circumstance. In our case we had two children and lost one to Afghanistan. Our daughter has MS. Should we then look forward to closing the garage door and leaving the engine running when we become too frail to care for ourselves in our own home? What happens to our widowed neighbor who will be caring for her disabled veteran son until one of them dies?

    Is the penalty for the crime of not having sufficient surviving kids to carry the burden of aging parents death?

  5. AMTbuff  ::  2:36 pm on March 25th, 2011:

    I recognize that there will be situations where family members cannot or will not provide care. I believe that those cases amount to less than 20% but your guess may differ from mine, especially if you assume that free care will be available from the government. I was assuming that the alternatives would be highly undesirable.

    I don’t agree that ensuring adequate long term care in this minority of cases requires creation of a program in which taxpayers fund long term care for everyone. That’s wasteful and unaffordable. Furthermore long term care does not require high levels of training or skill. Any family member can do it in most cases, and the family member is likely to be more careful and diligent.

    Again, I don’t argue that long term care has no value or that it’s not needed. I simply maintain that it is beyond the capability of the government to provide cost-effectively. Family and charities need to step in and handle it. After the bond market’s day of reckoning, the government will have a hard enough time delivering welfare and Social Security benefits to the needy.

    By the way, CLASS as currently designed will be virtually worthless if the Fed inflates the dollar in response to a bond market crash.

  6. DALIYA ROBSON  ::  2:38 pm on March 25th, 2011:

    Of course we need universal healtht care and universal old age insurance -up tp a point
    volunteering for usa. saving medicare costs.
    Our young soldiers volunteer to die on battle. We older sicker debilitated nearly dead people can offer to die before millions are spent on non essential and non effective tests etc and procedures that make doctors and hospitals rich but do not improve our lives. These end of life non essential procedures cost the country a lot of money and do not get us to heaven happier. I suggest we start an organization called
    Volunteer for america and have various aspects of this .
    If we are unable to get weller and will die anyway don’t allow doctors and hospitals and labs to get rich doing procedures and tests and surgeries-like chopping out the stomach of someone that has no legs or lungs of chance to live- already half dead but still have insurance to pay for this. .
    This is criminal waste of money and is practiced in hospitals to make them rich and not improve our last days on earth.

    2/ if on welfare. chroinically ill or or disabled and a burden to society .
    If you have a history of perversions, criminality, psychiatric illness AIDS or some other inherited disease that will cost the government millions -get sterilized and fornicate as much as you want but don’t bring disabled people into society to burden society
    3, get your tubes tIed or sterized
    If you are penniless and on the street or homeless and do not have a means to provide for a child don’t duplicate more of your self. Get sterilized and volunteer a few less dependents on society for america.
    If you already have 5 children and cannot support yourself stop bringing in more children for me to support.


  7. Sean  ::  3:50 pm on March 25th, 2011:

    As somebody who staffs a national call center where I speak with caregivers every week, I can testify to the need to address long-term care financing. The private LTC insurance market is a joke- with only 10% uptake and everybody else scared to purchase a product whose price (premiums) are subject to change whenver the insurer feels like it.

    Yes, family caregivers do provide the majority of long-term care, but, as Professor Richard Kaplan noted in his analysis of the CLASS Act (excellent, should be required reading for anybody voting on the CLASS Act), without CHARGE is not the same as without COST, especially for the family caregiver who may have to forgo their job, retirement plan, promotions, social security credits, saving for their own retirement, etc.

    Family caregivers sacrifice their health and emotional and financial well-being- There is a mountain of evidence on the increased health risks faced by family caregivers.

    The most common question I hear is “Can I be paid for the caregiving I’m doing,” and the answer is often “no, your state doesn’t have the Medicaid Waiver necessary for it.” For those folks who live in the states that offer such programs, the care recipient has to qualify for Medicaid- which is not an easy task, especially if you have a pension or assets that disqualify you from Medicaid.

    At the recent hearings on CLASS, a representative commented that one of his constituents was able to make if off of the waiting list for Medicaid HCBS services- the day after she died.

    CLASS may not be perfect in its current form, but with 10,000 baby boomers turning 65 every day for the next 19 years, our country has to find a solution. Putting everyone in Medicaid funded nursing homes is not a sensible solution.

  8. SidewaysShrink  ::  9:18 pm on March 26th, 2011:

    From my perpective in psychiatry, epidemiologic studies show that by age 85 50% of all people have a serious mental illness: almost all involve dementia either primary such as Alzheimers, Diffuse Lewey Body Syndrome; Dementia, Not Otherwise Specified or dementia secondary to broader neurologic syndromes such as Parkinsons; severe major depression that leaves the patient with slowed physical and mental responses (psychomotor retardation); and those with cognitive sequelae from CVAs who are still surviving. These patients present 2 major problems with the live at home family caregiver model: 1) many of them are
    not safe to be alone for even a half an hour for the risks of intentional (suicide) or accidental self harm (leaving the stove on or wandering away from the house). These patients are frequently amazing physically healthy and are frequently women who may live 10 years in this condition. That age group has been growing and is projected to grow. So it offers a serious challenge to the 20% number Mr. Bindner, whose idea I understand is being taken seriously, if with fear, by health economists. I would like to know what studies he has consulted that show 20% of seniors can be maintained at home and for how long.
    Thank you.

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  10. Michael Bindner  ::  4:16 pm on March 28th, 2011:

    Or volunteer to get eaten. I am assuming you are mimicking Swift when he advised eating Irish children.

    More kids, even poor ones, is actually the solution to the old age crisis, since they will produce and consume goods which can be taxed to pay for the retirement of their elders.

  11. Michael Bindner  ::  4:19 pm on March 28th, 2011:

    There already is a program. Its called Medicaid. CLASS is attempt to do a cheaper program with more individual responsibility. It won’t work. Having employers cover retirees 100% provided they can deduct that cost from their Business Receipts Tax burden may work, however. It will certainly inspire cheaper solutions and more accountability in care.

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