Many Americans are still confused about how the federal healthcare law will affect them. That’s understandable. The bill tallied over 2,000 pages. And many of its provisions have not been vetted publicly.
For instance, most Americans probably haven’t heard of the Community Living Assistance Services and Supports or CLASS Act, which charters a new government-run long-term-care insurance plan. But this under-reported measure threatens to add billions to the federal deficit — and diminish Americans’ private insurance choices in the process.
Americans need access to affordable long-term-care coverage, but the CLASS Act isn’t the way to deliver it.
Long-term care encompasses medical and non-medical services provided to chronically ill or disabled people to help them complete basic daily tasks. For example, an elderly person might rely on a long-term care aide to help him bathe and get dressed in the morning.
Many seniors often believe, mistakenly, that Medicare — the government health plan for seniors — pays for long-term care costs, but it does not. Many people with these needs either purchase private long-term-care insurance or pay for care out of their own pockets.
The CLASS Act changes all that by thrusting the government into the long-term-care insurance business. Starting in 2011, workers will be automatically enrolled in this new plan if their employer decides to participate. Each month, the feds will deduct between $150 and $240 in premiums from workers’ paychecks — unless they formally opt out of the program.
Participants will receive cash benefits — estimated at between $50 and $75 a day — if they become disabled and can’t perform certain “activities of daily living,” like getting dressed or using the bathroom. This money is meant to help people pay for an in-home caregiver or adult day care.
The catch? Beneficiaries must pay premiums for five years before drawing benefits — and work for three of those five years. With traditional long-term care insurance, once you are approved for coverage, your coverage begins on day one.
Lawmakers sold the CLASS program by claiming that it would reduce the federal deficit. They pointed to a study from the Congressional Budget Office (CBO) estimating that the program would drop the deficit by $72.5 billion.
That figure is a product of accounting trickery. Because beneficiaries have to pay into the CLASS pool for five years before they can collect benefits, the program’s bank account will be artificially inflated. Over its first decade, the program will collect premiums for 10 years while only paying out benefits for five.
Because there is no underwriting, people who expect to have a need will sign up. So once CLASS beneficiaries start drawing money in earnest, the program will fall into the red — very quickly.
Indeed, the same CBO report predicts that CLASS benefits will exceed premiums collected by the program’s second decade. It also finds that “in the decade following 2029, the CLASS program would begin to increase budget deficits … by amounts on the order of tens of billions of dollars for each 10-year period.”
That would make the federal government’s bleak fiscal situation even worse. Medicare alone is expected to rack up a $36.6-trillion deficit over the next 75 years. Social security will fall $5.3 trillion short during that period. The last thing the federal budget needs is another unfunded liability.
CLASS’s finances may deteriorate even faster than officials project. Why?
The program is open to all Americans, so it’s likely that only those who foresee needing the benefits will enroll. So, if CLASS’s subscribers are largely made up of high-cost individuals, then premiums for future beneficiaries will have to be even higher to compensate. That will cause healthier enrollees to drop their coverage, driving premiums up further. This cycle will repeat until premiums are unaffordable for everyone — or until the government opts to lose money on each beneficiary.
And if the government decides to operate CLASS at a loss, the private market for long-term care insurance will wither away. Private insurers can’t compete with a government entity that can run deficits forever. Proponents of CLASS have promised not to dip into the treasury to offset losses. But so did the creators of Social Security, and the government has been spending the money in that trust fund for decades.
The CLASS program is very well-intentioned but it represents yet another ticking debt time bomb for taxpayers. Legislators must find a better way to address Americans’ need for affordable long-term-care coverage.
[Janet Trautwein is CEO of the National Association of Health Underwriters. The organization represents more than 100,000 licensed health insurance agents, brokers, consultants and benefit professionals through more than 200 chapters across America. NAHU members service the health insurance needs of large and small employers as well as people seeking individual health insurance coverage.]