The CLASS Act and Long-Term Care

TO: Senator Kay Hagan (D-NC)
FROM: Robert Swendiman, MD MPP
DATE: October 26, 2012
RE: Demise of the Community Living Assistance Services and Supports (CLASS) Act

The CLASS Act program was an effort within the Affordable Care Act (ACA) to address the rising costs of long term care (LTC) for seniors and young workers with disabilities. Ultimately, the Obama Administration halted its implementation due to concerns regarding its fiscal sustainability. Unfortunately, in this political climate, new federal efforts to address LTC spending are likely to meet a similar end.

Financing Long-Term Care. As the cost of long-term medical care rises, both for public programs and individuals, lawmakers have sought ways to alleviate this financial burden. Medicaid now finances over 60% of this $208 billion annual price tag, and individuals pay about one-fifth of costs out-of-pocket. Approximately two-thirds of seniors will need some type of LTC in their lifetime, with services ranging from intermittent care in one’s private residence, to full-time observation in a nursing home or skilled facility. Given that fewer than 10% of all individuals 55 and older have private insurance policies for LTC, the CLASS Act was meant to serve as a voluntary, national insurance program that could attend to this growing financial risk.

With the goal of ensuring financial and personal independence for those with functional limitations in their daily activities, the CLASS program would offer all working individuals 18 and older the opportunity to purchase the LTC insurance, given a minimum yearly income of $1,200. Enrollees could collect a minimum of $50 as a daily benefit for LTC, which is about one-third the average daily benefit provided by similar insurance programs today. Premiums would be set based on 75-year cost projections to ensure solvency, and advocacy/counseling services would be established to aid individuals in LTC decision-making.

CLASS Program Limitations and its Demise. Due to a five-year vesting period, Congressional Budget Office (CBO) and the Centers for Medicare and Medicaid Services estimated that initial 10-year deficit savings would be $70 billion and $38 billion, respectively, though this trend would reverse in the ensuing years. However, the program’s sustainability was ultimately called into question, mainly due to the guarantee issue requirement and voluntary nature of the program. The concern was that patients who most needed the benefits would opt-in, and healthier patients would opt-out, also known as “adverse selection.” This, combined with the perceived modest benefit of the program, led the Secretary of Health and Human Services to send a letter to Congress, stating that the Administration did not see a viable path forward for implementation of the CLASS program at this time, and that implementation efforts would be halted.

“Fixing” CLASS. Thus, in addressing the question of paying for LTC through a federal program, the flaws that buried the CLASS program would have to be addressed:

• Adverse Selection – It is vital to the program that those with pre-existing medical conditions are included, but is it possible to ensure that enough young and healthy individuals enroll to spread the risk? While some have suggested a universal mandate to purchase LTC insurance, this produces obvious political challenges.
• Incentivizing Enrollment – Designing the program to require employees to “opt-out” would increase enrollment, but how would employers be incentivized to purchase this insurance? Without employer buy-in enrollment would remain low, as CBO already projects, estimating a 3% national participation rate.
• Financing and Modest Benefits – The Secretary estimated that monthly premiums would rise to just under $400 a month, a figure that is unaffordable, especially given such a meager daily benefit ($50).

There have been a number of small tweaks proffered in order to revive the CLASS program, though implementation would be extremely difficult given the current political climate. Despite the President’s reelection, 51% of Americans still desire repeal of the ACA, with the individual mandate remaining exceedingly controversial. A mandate for LTC insurance has been proposed to account for adverse selection, but cost and popularity would likely hinder enactment. The income requirement could be raised to $12,000 in order to lower premiums; however, this would likely exclude many of the working-disabled, a key demographic target of the CLASS program, thus limiting access. The daily payout could be increased, while the duration of eligible benefits limited, but this poses similar concerns. Without a mandate, CLASS is unlikely to seriously address the LTC issues this country faces.

Next Steps. Given barriers to implementing a program like CLASS, one must seek other viable options to improve access to LTC. Two such solutions to consider would be 1) creating a private insurance market for LTC under the Medicare program, much like Medicare Part D for prescription drug coverage. This again would be a voluntary system, but one that could potentially obtain more visibility and better buy-in, especially with seniors. 2) Allow individuals to use a small portion of their Social Security benefits to purchase LTC insurance in the private market. Coupling LTC insurance with Social Security may allow better planning for future health needs. However, cost and access remain unknown considerations in both of these proposals.


References

• U.S. Congressional Research Service. Community Living Assistance Services and Supports Provisions in the Patient Protection and Affordable Care Act (R40842; February 15, 2012), by Janemarie Mulvey and Kristen J. Colello. Text in: LexisNexis® Congressional Research Digital Collection. Accessed: November 5, 2012.
• H. Stephen Kaye, Charlene Harrington, and Michell P. LaPlante. Long-Term Care: Who Gets It, Who Provides It, Who Pays, and How Much? Health Affairs, 29, no.1 (2010):11-21.
• Terence Ng, Charlene Harrington, and Martin Kitchener. Medicare and Medicaid In Long-Term Care. Health Affairs, no. 1 (2010):22-28.
• Howard Gleckman. Requiem for the CLASS Act. Health Affairs, 30, no. 12 (2011):2231-4.