Problems with the CLASS Act

You can find video of the briefing, an MP3 audio version, copies of the handouts, and speaker bios here. Following are my notes on the program interspersed with critical comments.

LTC Comment: Let's start with the setting. KFF's digs in DC are lush. Attendees were greeted with a generous spread of Panera bread, coffee, parfaits, fruit, and plentiful pastries. From a high-tech lobby with TV monitors and internet stations tuned to KFF.org, you ascend to a conference hall with television cameras and big screens for instant replays I suppose, just in case something interesting happens. By comparison, I couldn't help thinking about the Dunkin' Donuts and amateur PowerPoint slides the poor AMGs of long-term care insurance are usually stuck with. (AMGs: Altruistic, masochistic geniuses trying to sell a product the government has been giving away for 44 years.)

Oh well. Diane Rowland, Executive VP of the Kaiser Family Foundation and Exec. Dir. of the Kaiser Commission on Medicaid and the Uninsured, opened the program by greeting the audience of around 200. She explained how long-term care is the Rodney Dangerfield of social programs, "can't get no respect." (My allusion.) So it's high time to fix long-term care and melding the CLASS Act into health reform is how to do it.

Next came three presenters who explained what the CLASS Act is. Judy Feder, a professor of public policy and Senior Fellow at the Center for American Progress, led off. She's a longtime advocate for a government takeover of long-term care. Failing that, she's adopted the CLASS Act. She starts off with facts no one contests. Lots of people need long-term services and supports; more and more, all the time; that's really expensive; folks would rather get help they need at home, not in a nursing home; we need to pay caregivers better whatever the setting.

OK so far, but transitioning from what we have and what we want to how to get it, Feder ran off the rails. We don't have an insurance system to support long-term care, she says.

Oh really? Only 22% of long-term care costs are paid out of pocket and half of that is just spend-through of Social Security income that people already on Medicaid have to contribute to offset Medicaid's cost for their care. With Medicare paying 25% and Medicaid 40% on top of that, it sounds like a government monopsony to me. Darn near a single-payer system already.

Whose fault is that? Feder blames private long-term care insurance, looking down her nose at a "fledging industry for 30 years" that only covers 8% of long-term care costs. What's wrong with those incompetent greedy insurance people? Why couldn't they design a product that does everything everyone wants at a price they're willing to pay? HELLO! How could private LTC insurance be anything but a niche business when you just admitted the government pays for almost all LTC expenses?

This is bad enough, but it quickly got much worse. Feder proceeded to employ a common shibboleth used by opponents of market-based solutions to the long-term care challenge. She insists people "must exhaust all their resources before Medicaid kicks in." Good grief. How does that myth persist in the face of hard reality.

Income rarely prevents anyone from qualifying for Medicaid long-term care benefits; recipients can retain unlimited exempt assets; "mandatory" estate recovery is easy to evade; and thousands of Medicaid planners eagerly impoverish even more-affluent people artificially after the insurable event has occurred.

My point here is simple: If Feder were right, if Medicaid really did require impoverishment, people would buy private long-term care insurance. It doesn't so they don't. Not exactly rocket science even for denizens of the beltway.

Furthermore, Feder insists Medicaid favors nursing homes and short changes home and community-based care which people prefer. Well, why is that? Medicaid made nursing home care free (or radically subsidized) in 1965. Nursing homes became the dominant venue for long-term care. Only when Medicaid-financed nursing homes got such a terrible reputation for poor access and quality did private-pay alternative services (assisted living, geriatric care management, adult day care, etc.) and financial products to pay for them (private long-term care insurance) start to evolve.

Now Medicaid can't afford to fund HCBS (which people want) instead of nursing homes (which people would rather avoid) despite 25 years of trying to "de-institutionalize." In the meantime, private long-term care insurance pays twice as much for home care and assisted living as for nursing home care: precisely the opposite proportion as Medicaid. Clearly, private insurance is the solution, not the problem.

How will the CLASS Act help? After five years of paying in a beneficiary will be entitled to a small daily cash benefit if they meet triggers that won't be defined until the government figures out what it will be able to afford. Can you imagine a private insurance company trying to pull off a sleight of hand like that? They'd be laughed out of town ... then jailed!

Connie Garner, policy director for Disability and Special Populations, U.S. Senate Health, Education, Labor and Pensions (the "Kennedy") Committee, was next up. I must say I was impressed with her ingenuity and creativity. She took a demonstrably terrible plan and, by responding to early criticism, turned it into a bill that is only bad.

Her shtick goes like this: We need to think about long-term services and supports as a health issue not as a disability issue. Under the disability paradigm, you have to be poor and functionally limited to get any help, a la SSI, SSDI and Medicaid. Why not have a system people pay into when they're younger that gives them cash later when they need it so they can buy the kinds of long-term care services they want?

Brilliant. I'm all for it. Let's go! But, hey, we already have that. It's called private long-term care insurance. It's actuarially sound; it's responsibly underwritten; it sets aside real money in carefully invested reserves; it's bitten the bullet and adjusted premiums up so it can pay all claims in the future, unlike all the government programs that are unfunded to the tune of trillions of dollars. What's not to like? Just stop giving away long-term care through inferior government programs and people will buy this product.

Oh, say the CLASSicists, why tie US down with all those troublesome restrictions? Let's have another government "insurance" program, but free it up from all the constraints that make private insurance so hard to design and manage.

In fact, let's have no underwriting; let's cover anyone and everyone who "works" even for a calendar quarter, even for $1,000 per year; let's never pay less than $50 per day no matter what happens; let's have lifetime benefits; let's promise never to raise the premium during a covered person's lifetime; let's make them pay premiums for five years before they vest for benefits so we can build a big "trust fund." Great. And for the CLASS logo, how about a "Yellow Submarine?"

Now what if this blows up in their faces? What if politicians steal the "trust fund" as they've done Social Security's and Medicare's? What if costs exceed reserves? What if too many people "opt out?" What about the little matters of adverse selection, induced demand, and moral hazard?

No problem advocates say. We worried about all that stuff until we came up with an inspired solution. We'll just give the secretary of the Department of Health and Human Services authority to change all the rules arbitrarily whenever necessary. Can't make the numbers work with a two-ADL trigger? Simple. Bump it to three. But won't beneficiaries scream ...  and sue? Right. Sue the government? No worry there. How can you argue with people who believe in the "Good Fairy of Long-Term Care?"

Garner closed her remarks with a challenge. If you don't like the CLASS Act, then you need to suggest something else. OK. I accept the challenge. Stop giving away what the insurance industry is trying to sell and you can have a dominantly private-pay LTC system based primarily on home and community-based care with a financially healthy safety net program for people truly in need. But build more of your deficit-financed government castles in the sky and the whole superstructure will collapse sooner rather than later.

Up next was Paul N. Van de Water, Senior Fellow at the Center on Budget and Policy Priorities. He brought up the fascinating question of whether or not the "reserves" built up by CLASS in the first five years, while it's collecting premiums, but paying no benefits, can rightfully be considered to reduce the federal deficit. Answer: no problem as long as you also take into account that CLASS itself runs a deficit later on.

Say what? That sure sounds like double-talk. But no. If you assume broader "health reform" will "bend the curve" downward for the overall health care system in the future, then you can have your cake (CLASS deficit reduction) and eat it too (lower costs overall in the long term). Next he moved smoothly into promoting a prospectus for investing in a bridge across swamp land. Uh, just kidding about that last one.

Four more speakers offered comments on CLASS from the perspective of various interest groups, i.e. the administration, AARP, long-term care providers, and disability advocates. In a nutshell, they like the CLASS Act but they didn't add very much new to what was already presented. So check them out if you're interested on KFF's video or audio of the program here.

Questions and answers were next:

John Greene of NAHU wanted to know if adding LTCI to cafeteria plans has a chance. Garner allowed as how it's important to encourage private LTC insurance. But no commitment.

Bob Rosenblatt, a freelance writer, asked if there would be any restrictions on how one's $50 benefit could be used? Garner said they'll have a "suggested list of services."

Yours truly commented that not a single word of criticism was voiced during the entire briefing and I wished there had been some balance. I also asked that if Brown and Finkelstein (www.nber.org) say Medicaid crowds out up to 90% of the private long-term care insurance market, why do they think CLASS policies will fare any better? Three of the panelists replied, more than for any of the other questions.

Garner said they're only counting on 5% market penetration so no problem, but they'll probably get much more take up because of lifetime coverage, no underwriting and the rest of the CLASS Act's [fantasy] benefits. Larry Minnix of the American Association of Homes and Services for the Aging said younger people will be willing to pay the premiums because they have seen LTC in their own families.

Howard Gleckman of the Urban Institute asked a follow-up to my question about the likely participation rate with a $125 per month premium. Garner said they got no focus group "kick back" from younger people over the $60-every-two-weeks premium level.

Josh Wiener of the Research Triangle Institute queried how the subsidy for low income people would work. Ms. Garner said there is no subsidy, but what's interesting about the CLASS Act's CBO "score" is that if participation goes up "our premium can be way less." Besides, they didn't expect to see Medicaid savings in the sixth year. CBO says CLASS will save Medicaid $1.2 billion over ten years. LTC Comment: Right, and government prognosticators really nailed the cost of Social Security, Medicare and Medicaid too. Not.

Eileen Tell of the Long Term Care Group asked if employers, as well as employees, can opt out and how they'd be penalized if they opt in later. Garner replied opting out is voluntary for employees and employers. HHS will set up a mechanism for people to pay premiums directly to the government if the employer opts out or doesn't want to handle payroll deduction.

Morris Tenenbaum, CEO of Kings Harbor Multicare Center in the Bronx, a self-described one-person think tank, proposed a long-term care financing solution based on making use of life insurance coverage already held by 70% of the population.

There were two other questions, but my mind wandered to the Chesapeake Bay hard-shell crabs I was planning to attack for lunch, before racing out to Dulles for the long ride home during which I wrote this piece.

I hope today's LTC Bullet increases "CLASS Consciousness," because whether you like the CLASS Act or not, it is only right to scrutinize the proposal carefully from every angle before taking the plunge into a huge new government program.

Stephen Moses is president of the Center for Long-Term Care Reform, a private institute dedicated to promote positive public policy for the long-term care field.