The future is increasingly uncertain for the CLASS Act, a controversial long-term care insurance program created by the 2010 federal health law and championed by the late Sen. Edward Kennedy, D-Mass.
The Health and Human Services Department has promised to release a detailed analysis in mid-October of what can be done to shore up the program’s financial structure, based on a review of legal and actuarial reports. Late last month, HHS reduced the CLASS office staff, and the Senate Appropriations Committee approved a draft spending measure that cut funding for the program's planning and implementation.
CLASS critics say the program is not self-sustainable and will be a drain on the federal budget. Republicans, in particular, have pushed for its repeal. But advocates say it can be modified to ensure no taxpayer dollars are used to pay for it. This tension has cast shadows on the program since early in the health-reform debate, and recent events have further complicated its outlook.
Advocates are worried that the administration may be on its way to shelving the program for good. They also are concerned that CLASS could be targeted by the congressional super committee in its effort to trim federal spending and home in on entitlement programs. Supporters are quick to note, though, that previous Congressional Budget Office estimates show that repealing CLASS would add to the deficit over the debt panel's mandated 10-year budget window because in its first years it takes in premium payments but doesn't pay any benefits until 2017.
Here's a guide to the CLASS provisions that trigger questions about its financial viability, and the possible fixes that are being considered.
Why do supporters think CLASS is needed?
The goal of the CLASS Act is to help people pay for long-term care with an emphasis on allowing them to remain in their own homes by providing a cash benefit averaging no less than $50 a day.
Currently, Medicaid, the state-federal health insurance for low-income people, accounts for almost half of the nation's long-term care spending. The number of Americans needing such care is projected to grow from 10 million now to 15 million by 2020, costing Medicaid even more. Only about 8 percent to 10 percent of Americans have private long-term care insurance policies. Supporters view CLASS as a way to begin addressing this issue. "If anyone's got a better idea, tell them to step forward," said Larry Minnix, the president and chief executive officer of LeadingAge, an association of 5,600 not-for-profit aging organizations.
What factors could keep CLASS from paying its own way?
As written into law, the program purposefully made it easy to qualify to ensure broad participation, including working people with disabilities as well as those planning for their future needs. But experts fear people at highest risk will be more likely to participate, driving up premium costs and discouraging healthy people from enrolling. Ultimately, critics worry taxpayers could be on the hook if premiums fall short of covering benefit costs.
According to the American Academy of Actuaries, provisions of CLASS will encourage this outcome, known as adverse selection, and will reduce the chance that it will be financed entirely by premiums paid by working adults. For starters, participants only have to meet fairly low "at-work" requirements -- under the law people could qualify if they earned as little as $1,200 annually. They must also pay into the program for five years, and be working for three of those years, before they can get the cash benefit. In addition, neither underwriting practices nor pre-existing conditions exclusions can be used to prevent participation.
What are some ideas about how to fix the program?
HHS officials say implementation of CLASS will not proceed if it is not "fiscally solvent, self-sustaining, and consistent with the statute," and that they are exploring fixes, such as partnering with employers to encourage more healthy workers to sign up, changing the employment and earnings qualifications requirements, and indexing premiums to rise with inflation.
But, the ideas HHS has so far discussed publicly are only half-measures, according to Steve Schoonveld, who represents the actuaries on CLASS issues.
If the program is to have a chance at success, the actuaries recommend major changes such as strengthening the at-work definition to require at least 20 to 30 hours of work each week, rather than relying on the low salary threshold, to mitigate the risk that only those already in need of care will enroll. The actuaries also urge benefit-duration limits, and using a reimbursement system rather than paying cash so that money is tied to specific approved expenses.
Would the program's scope change as a result of these kinds of modifications?
Minnix said that advocates are open to modifications if it means CLASS gets off the ground, but that they won't be able to evaluate whether the changes are acceptable until they see details.
One likely risk: Many of the changes now being discussed would end up excluding some people with disabilities who are employed, but who cannot meet the more stringent work requirements. These are some of the people the program was designed to help.
"If you don't make these changes, the program will die," said Howard Gleckman, a resident fellow at the Urban Institute. An entirely different program ultimately may be needed to give working people with disabilities long-term care coverage, he added.
Meanwhile, making any adjustments that require changing the Affordable Care Act is a practical impossibility in the current political climate.
Connie Garner, executive director of Advance CLASS, a coalition of groups that supports the program and a long-time Kennedy staff member, said that, regardless of political pressures, the problems plaguing the long-term care system won't go away if CLASS falls through. "We need a system other than Medicaid that will allow us to plan for that unknown, and private insurance can't do it alone," she said.
Matt Salo, executive director of the National Association of Medicaid Directors, said that states have long worried about spiraling long-term care costs, and the burden is only going to get worse without exploring more options like CLASS concept. "Long-term care is what will break Medicaid's back," he said.
Kaiser Health News is an editorially-independent program of the Kaiser Family Foundation, a nonpartisan health care policy organization that is not affiliated with Kaiser Permanente.
This article appears in the October 5, 2011 edition of National Journal Daily PM Update.