As the U.S. population ages in the coming decades, the need for some sort of insurance to cover long-term health care expenses – such as in-home support services – will also rise.
With this in mind, Congress and the Obama Administration last year included in the controversial health care reform act a little-discussed provision to implement a government-run long-term health care insurance program known as CLASS in October 2012.
Yet with a year to go before that deadline, officials with the U.S. Department of Health and Human Services are finding it difficult to devise a mix of benefits and premium levels that both would make such coverage attractive and affordable for consumers, and ensure the program is actuarially sound. That struggle may delay the program’s start until the fall of 2013, if not later.
At the same time, the private market for such insurance, once robust, has declined in recent years. And average premiums that hover in the hundreds of dollars a month are a hard sell to workers in their 20s and 30s – in the midst of a recession — who may not see a need for coverage that they aren’t likely to use for two to three decades down the road.
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Nonetheless, the need exists and will grow larger in the coming years, both advocates and critics of the fledgling CLASS program agree.
“If you just look broadly at all adults, only 3 percent of the population has any sort of private long term care, and if you look at just older people, people over 65, I think it’s about 10 percent,” said Joe Caldwell, director of Long-Term Services and Supports Policy at the National Council on Aging, which backs CLASS.
“So people aren’t really prepared at all. And like I said, it really ends up being Medicaid that provides a lot of those services, but we make people become poor to qualify for long-term care through Medicaid,” he added.
The Community Living Assistance Services and Supports Act is a relatively short 20 pages of the huge Affordable Care Act, which was enacted in March 2010. It mandated a voluntary long-term care insurance program, to be implemented no earlier than October 2012.
According to the law, employers who sign up for the program would automatically enroll their workers unless individual employees opt out. After a five-year vesting period of consistent premium payments, a beneficiary would be eligible for average benefits of no less than $50 a day to help pay for a range of services at home or in a nursing facility, such as eating, bathing, dressing and using the toilet.
Advocates say the program was not envisioned to fully cover such services, which tend to cost much more than $50 per day, but more to supplement whatever other resources beneficiaries can draw on. It also, they contend, would help patients avoid becoming destitute to qualify for Medicaid, which requires states to cover nursing home expenses but does not mandate coverage of in-home services.
In a February speech, HHS Secretary Kathleen Sebelius noted that some 10 million Americans currently need long-term services, which could rise to 15 million by 2020. She also said one out of six people who reach the age of 65 eventually will spend more than $100,000 on long-term care.
According to a July survey of almost 1,500 registered California voters age 40 and over by the SCAN Foundation and the UCLA Center for Health Policy Research, two-thirds of the respondents said they could not afford more than three months of nursing home care. About four in ten could not afford a single month of care, and only 14 percent said they’ve purchased long‐term care insurance.
One major sticking point for CLASS, which by law cannot be subsidized with taxpayer funds, is the cost to consumers. Average monthly premiums could be in the $160 range if the average daily benefit reaches $75, according to a 2009 estimate by the American Academy of Actuaries, a 16,000-member professional group that takes no position on the law itself. The Academy stressed, though, that major changes in the law are needed to make the program sufficiently sound to offer premiums even at that level.
Richard Foster, the chief actuary of the Centers for Medicare and Medicaid Services, an arm of the Health and Human Services Department, reported last year that average premiums would have to be set at $240 per month to adequately finance the program.
Back in 2009, when Congress was considering the CLASS proposal as part of the larger health reform bill, Foster and other administration officials privately raised concerns about its viability, according to The Associated Press. William Marton, who still heads the HHS Division of Disability and Aging Policy, wrote in an email that CLASS “seems like a recipe for disaster” because it would not attract sufficient numbers of healthy subscribers, AP reported Wednesday.]
These concerns center on the concept of “adverse selection.”
With auto insurance, for example, the state requires everyone who operates a car to buy coverage. The private companies that offer such insurance theoretically pay out less in payments for accidents and other covered events, and administrative costs, than they collect in premiums from a large pool of insured drivers.
But the worry with CLASS is that, being voluntary, the pool of persons who enroll will include too many individuals who currently suffer from health problems or who anticipate a need for coverage in the future, and too few persons who pay premiums but subsequently collect little or no benefits.
Further, setting the premium at a rate sufficient to cover CLASS benefits “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,’” Foster said.
But while CLASS faces hurdles getting started, the private long-term care market is retrenching. According to LIMRA, an industry research group, 11 firms that once were among the top 10 long-term health care insurers no longer offer individual coverage, including MetLife, Unum, Allianz, CAN and IDS. Others have asked state regulators for big premium increases.
Nationally, a LIMRA spokeswoman said, the number of carriers has dropped from more than 100 a decade ago to fewer than 50 now. In California, that number has dropped from 28 in 2003 to 17 this year, according to state Department of Insurance records.
The last few years have been particularly disappointing to the industry as fewer policies were purchased despite the public’s greater awareness about the need for such coverage, a LIMRA report from June 2010 noted.
Some advocates contend CLASS, once it’s up and running, will improve public knowledge about and willingness to buy long-term care insurance, whether from private firms or the government program. But politically speaking, CLASS’ future faces tough sledding. The so-called “Gang of Six,” a bipartisan group of U.S. senators that tried earlier this year to devise a plan to reduce the national deficit and debt, called for its repeal. In 2009, the Democratic chair of the Senate Budget Committee called CLASS “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.”
Some opponents contend the program as currently structured is so financially unviable that Congress eventually will have to bail it out. But as a philosophical matter, they simply don’t think the government should be offering long-term health care insurance.
“We certainly agree that there’s a significant policy concern with regards to long term care. It’s something that most Americans don’t prepare for adequately,” said Kathryn Nix, a policy analyst at The Heritage Foundation, a conservative think tank that opposes CLASS.
“The right way to approach this is to … encourage individuals to save for their anticipated needs. But it’s not for government to intervene in the market. Government intervention has a place and this is not it,” she added.
The actuarial issues that critics have identified have led even the administration to agree that major alterations are necessary, most of which they contend can be handled administratively. Nix disagreed, saying the administration will have to approach Congress for most of the changes it’s seeking.
In her February address, Sebelius said her staff is exploring ways of raising awareness of the program, closing loopholes, making it more flexible for employers and indexing premiums to inflation, just as benefits are now tied.
“It would be irresponsible to ignore the concerns about the CLASS program’s long-term sustainability in its current form,” she said. “But it would be unconscionable to ignore the likelihood that without a CLASS Act, countless Americans will have to clear out their savings or leave their homes and loved ones in order to get the services and supports they need.”
A HHS spokesman declined to comment on the status of the administration’s deliberations. The Congressional Budget Office currently assumes a one-year delay in implementation.
“Trying to get some healthy people in and having a good mix of people in there is going to be the challenge,” said Sean Coffey, at the Family Caregiver Alliance in San Francisco, which supports CLASS. “If they can do that, then it should be sustainable.”
Coffey noted that the CLASS law requires the HHS secretary to certify that it will be solvent over 75 years before it can be implemented. “At least my sense of Secretary Sebelius is that she’s not going to do the program if she can’t get it to work within the parameters of the law of being self-sustaining,” he added.
Herbert A. Sample is a freelance writer based in Los Angeles. He can be reached at has firstname.lastname@example.org.