CLASS Act math

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If you are confused about the financial implications of the highly publicized CLASS Act, you are not alone. If it's supposed to be solvent and actuarially sound over the long term, why is the program expected at some point to increase the deficit?

That is a good question, and one that that the American Association of Homes and Services for the Aging is more than happy to answer. Its leaders have been trying to knock out misinterpretations of Congressional Budget Office statements over the last several days from all corners.

The latest happened this week after news reports quoted CBO Director Doug Elmendorf saying that the Community Living Assistance Services and Supports Act (CLASS) Act would contribute to the federal deficit starting in 2030. He also was noted saying the long-term care insurance proposal could add tens of billions of dollars to the deficit in each succeeding decade.

Yikes. Just using the word deficit is enough to send supporters scurrying. To be clear, AAHSA does not dispute Elmendorf's statements, but instead takes issue with the way they have been taken out of context.

The CLASS Act, which appears in both House and Senate healthcare reform bills, likely will add to the deficit starting in 2030, but that doesn't mean the program will run out of money—or make taxpayers pony up to cover it, says AAHSA CEO and President Larry Minnix.

The main questions, Minnix says, are “Is it solvent and does it pay for itself? The answer to both of those things over 75 years is yes.”

Minnix compares the financial structure of the CLASS Act to a bank account. At certain times of the year, your bank account goes down, but that doesn't mean you're broke. You have enough to cover for the long-term. Such is the case with the CLASS Act trust, which will rely on monthly premiums from workers (who would opt in and opt out) and earned interest.

“At a particular period of time you have less money going in than going out, but you have so much in you reserves that your bank account never runs dry,” adds Barbara Manard, vice president of AAHSA.

Deficit definition

The deficit, Manard explains, has to do with cash flows and how much the federal government is borrowing at any one time. During the first 10 years of CLASS, the program is expected to build up cash reserves—about $72 billion. It would be deficit reducing because there would be more money coming in than going out. In 2030, the reverse is expected to be true.

But that doesn't mean the program would be broke, Manard says emphatically. There will be an ebb and flow to the money coming in and going out of the CLASS fund. Just as the program would be deficit reducing at the beginning, it could be deficit producing later. Both situations would be temporary, Manard asserts.

The big question you may be asking is: Will we taxpayers eventually be footing the bill for the program when it starts adding to the deficit?

Absolutely not, Minnix and Manard say.

“No one's going to be turning to our grandchildren and saying we're going to have to tax you because … all the money is going out of the coffers,” Minnix says.

The program has been proven to pay for itself over 75 years—even though it may not always have as much money coming in as going out, according to Minnix.

There no doubt will be plenty more arguing, disagreeing and parsing of this issue. But one thing seems clear: The CLASS Act is not set up to be another Medicare program, which relies on taxpayer dollars.

I don't know about you, but just knowing that makes me feel better.


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Daily Editors' Notes

McKnight's Daily Editors' Notes features commentary on the latest in long-term care news and issues. Entries are written by Editorial Director John O'Connor, Editor James M. Berklan, Senior Editor Elizabeth Newman and Staff Writer Emily Mongan.

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