by Joshua M. Wiener, Ph.D.
The Obama Administration’s recent decision not to implement the Community Living Assistance and Services (CLASS) Act provision of health care reform represents a practical but disappointing reality – voluntary enrollment in health and long-term care insurance programs is anything but a sure bet among Americans.
The CLASS Act would have been a voluntary long-term care insurance program administered by the federal government that would provide a cash benefit to be used to pay for home care, nursing homes and assisted living facilities. After extensive analysis, the Administration reluctantly concluded that it could not certify, as required by the law, that the program would be actuarially sound and financially solvent for at least 75 years.
Consumer advocates for older people and younger adults with disabilities are greatly disappointed, and opponents of health reform have cited the CLASS Act as emblematic of overall problems of the Affordable Care Act.
The problems of the CLASS Act are directly attributable to the fact that enrollment is voluntary, combined with provisions designed to help younger people with disabilities and low-income people enroll. As a result, premiums would have been too high to attract a broad population. The Department of Health and Human Services estimated that premiums would have been between $235 and $391 per month, far too high to be affordable for the vast majority of working Americans. Indeed, the CLASS Act problems are a cautionary tale of the problems that result when enrollment in insurance programs is voluntary.
Unlike public long-term care insurance programs in Germany, Japan, the Netherlands and Austria, the CLASS Act did not mandate that everyone enroll. Moreover, unlike private insurance, the CLASS Act did not exclude people with disabilities and chronic conditions from enrolling in the program. Thus, the program would have been subject to “adverse selection” that could constantly drive up premium costs. Actuaries assumed that most people with disabilities would enroll because they needed the benefits that CLASS would provide. If relatively few people without disabilities enrolled, the program’s ability to spread the costs of people using benefits across a broad population would be limited, and premiums would be high, potentially causing people without disabilities not to enroll or to disenroll.
The CLASS Act attempted to address adverse selection by limiting enrollment to the working population and requiring that people pay premiums for at least five years before claiming benefits. Most, but not all, people with disabilities would be prevented from enrolling in CLASS because a large majority of people with disabilities do not work, and the five-year waiting period would deter people who needed help immediately from enrolling. However, to cushion the adverse impact of this requirement on younger people with disabilities, the definition of “working” is minimal, only requiring that people earn $1,120 a year, thus allowing people with disabilities with marginal workforce participation to enroll.
Adding to the costs of the premium are the lifetime benefits and the large premium subsidy for low-income people financed by people who are insured. Like many other government programs, the CLASS benefit would be provided for as long as people needed help. Lifetime benefits would be particularly beneficial for younger people with disabilities, who might live for 30 or 40 years after first claiming benefits. This aspect is less important for older people, who typically need long-term care for only a few years. Unfortunately, lifetime coverage results in premiums that are about a third more expensive than policies with five years of coverage.
Finally, the legislation provides for an extremely generous premium subsidy for the working poor and for students. Premiums are set in statute at $5 a month. However, instead of the premiums’ being subsidized through the tax system, like most other subsidies in government programs, low-income people and students would be subsidized by other people who enroll in CLASS. According to the SCAN Foundation/Avalere Health premium simulator, CLASS Act premiums with a low-income subsidy are likely to be 50 percent higher than premiums without a low-income subsidy.
Potential fixes to the CLASS program to lower premiums and encourage enrollment by people without disabilities are straightforward. The definition of “working” could be tightened to limit enrollment to people who work something close to full-time. Moreover, the length of coverage could be shortened from lifetime to some shorter period, perhaps five years. Finally, the premium subsidy to low-income people and students could be eliminated or financed through tax revenues. While these changes would lower premiums and make the program more attractive to working people without disabilities, they would further exclude younger people with disabilities and low-income people, raising questions about the social purpose of the program. CLASS would be a program primarily for the future elderly population rather than people of all ages who have disabilities.
Mandatory enrollment could lower premiums by three-fourths and increase affordability greatly, but would raise all of the issues and politics that plague the health insurance provisions of the Affordable Care Act. CLASS will not be implemented, but the need for long-term care financing reform remains and will become more urgent as the aging of the baby boom generation increases the number of people needing long-term care.