There are major problems brewing with the long-term care program created under the Patient Protect and Affordable Care Act (PPACA). Effective since Jan. 1, the Community Living Assistance Services and Supports Act, or CLASS program, is a controversial new national entitlement program with significant financial concerns.
The program is similar to a private long-term care plan that pays cash benefits to help purchase non-medical services such as home healthcare and adult day care services for those unable to perform certain “activities of daily living” (ADLs). It is estimated that more than 10 million Americans need long-term services to assist them with ADLs. That number is expected to grow with the aging of the population and growing number of people with disabilities.
The program will automatically enroll anyone over age 18 who is working, unless they specifically opt out. The Center for Medicare and Medicaid Services (CMS) estimates an initial premium of at least $240 per month. Premiums, which will ultimately be set by the Secretary of Health and Human Services, will vary by age at enrollment and by year of enrollment. Clearly, the problem of any voluntary program is adverse selection: Healthy individuals will opt out and those with problems will sign up.
Higher-income and healthier participants will subsidize the $5 premiums for students and low-income enrollees. For premiums to remain affordable Congress may ultimately have to subsidize the CLASS program, precisely what proponents argued during the debate over health reform would not happen.
Individuals who pay into the program for at least five years (and work during at least three of those years) and meet eligibility criteria will receive a daily cash benefit if they have functional limitations that are expected to last at least 90 days.
Benefits will be for individuals who are unable to perform two or more activities of daily living (e.g., eating, toileting, bathing, dressing, transferring from a bed or chair), or individuals who have an equivalent cognitive disability that requires supervision or hands-on assistance to perform those activities (e.g. traumatic brain injury, Alzheimer’s disease, multiple sclerosis, mental retardation).
Benefits will vary based on degree of disability or impairment averaging no less than $50 per day. They are expected to average $75 per day, or more than $27,000 per year. There are no lifetime limits, and benefits can continue for as long as a person remains qualified.
The problems are myriad in the CLASS program, already controversial in an era when existing entitlements are criticized for overpromised benefits and financial instability. Some argue that we cannot add another expensive new entitlement program.
Critics maintain that promoters of the program played a “political financial trick.” A net federal savings of $38 billion was estimated for the first nine years of operations, the first five of which are prior to any benefit payments. The federal health law was promoted on the basis of a 10-year congressional budget, producing a savings. After 2015, however, as benefits are paid the net savings from this program will decline. By 2025 and later, projected benefit payments exceed premium revenues, resulting in a net annual federal deficit in all future years.
According to CMS Chief Actuary Richard Foster, “[P]rograms such as CLASS face a significant risk of failure as a result of adverse selection by participants. Setting the premium at a rate sufficient to cover the costs for such a group further discourages persons in better health from participating, thereby leading to additional premium increases. This effect has been termed the ‘classic assessment spiral’ or ‘insurance death spiral.’ Based on an actuarial analysis there is a very serious risk that the problem of adverse selection will make the CLASS program unsustainable.”
In December 2010, the bipartisan National Commission on Fiscal Responsibility and Reform raised doubts about whether CLASS could be fixed in ways that were financially responsible and politically palatable. The commission recommended that if CLASS couldn’t be reformed, it should be repealed.
The commission noted: “The program’s earliest beneficiaries will pay modest premiums for only a few years and receive benefits many times larger, so that sustaining the system over time will require increasing premiums and reducing benefits to the point that the program is neither appealing to potential customers nor able to accomplish its stated function. The program is therefore likely to require large general revenue transfers or else collapse under its own weight.”
While the CLASS program has not received much public airing, the political debate is heating up. Implementation regulations are scheduled for October 2012. Because of the long-term financial concerns, repeal of the CLASS Act may have bipartisan support. The political difficulty in eliminating the program is the “deficit reduction” in the early years, when the premiums collect before benefits start. The financial challenge is the projected deficits after 2025 when increasing benefits begin to be paid.
Employers and other healthcare stakeholders need to closely monitor the developing regulations and political debate. “CLASS warfare” is likely to be a key part of the 2012 presidential and congressional election debate.
[Ronald E. Bachman FSA, MAAA, is president and CEO of Healthcare Visions, Inc. and a Senior Fellow at the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. He is also a Senior Fellow at the Center for Health Transformation, the Wye River Group on Health and the National Center for Policy Analysis.]
