The Future of the CLASS Act and Long-Term Care
By Howard Gleckman :: 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?