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 theprogram interspersed with critical comments.

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

Oh well. Diane Rowland, Executive VP of the Kaiser FamilyFoundation and Exec. Dir. of the Kaiser Commission on Medicaid and theUninsured, opened the program by greeting the audience of around 200. Sheexplained 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 CLASSAct is. Judy Feder, a professor of public policy and Senior Fellow at theCenter for American Progress, led off. She’s a longtime advocate for agovernment takeover of long-term care. Failing that, she’s adopted the CLASSAct. She starts off with facts no one contests. Lots of people need long-termservices 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 needto pay caregivers better whatever the setting.

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

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

Whose fault is that? Feder blames private long-term careinsurance, looking down her nose at a “fledging industry for 30years” that only covers 8% of long-term care costs. What’s wrong with thoseincompetent greedy insurance people? Why couldn’t they design a product thatdoes everything everyone wants at a price they’re willing to pay? HELLO! Howcould private LTC insurance be anything but a niche business when you justadmitted 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-basedsolutions to the long-term care challenge. She insists people “must exhaust all theirresources before Medicaid kicks in.” Good grief. How does that mythpersist in the face of hard reality.

Income rarely prevents anyone fromqualifying for Medicaid long-term care benefits; recipients can retain unlimited exemptassets; “mandatory” estate recovery is easy to evade; and thousandsof Medicaid planners eagerly impoverish even more-affluent people artificiallyafter the insurable event has occurred.

My point here is simple: If Feder wereright, 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 fordenizens of the beltway.

Furthermore, Feder insists Medicaid favors nursing homesand short changes home and community-based care which people prefer. Well, whyis that? Medicaid made nursing home care free (or radically subsidized) in1965. Nursing homes became the dominant venue for long-term care. Only whenMedicaid-financed nursing homes got such a terrible reputation for poor accessand quality did private-pay alternative services (assisted living, geriatriccare 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 (whichpeople want) instead of nursing homes (which people would rather avoid) despite25 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 fornursing 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 payingin a beneficiary will be entitled to a small daily cash benefit if they meettriggers that won’t be defined until the government figures out what it will beable to afford. Can you imagine a private insurance company trying to pull offa sleight of hand like that? They’d be laughed out of town … then jailed!

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

Her shtick goes like this: We need to think aboutlong-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 toget any help, a la SSI, SSDI and Medicaid. Why not have a system people payinto when they’re younger that gives them cash later when they need it so theycan buy the kinds of long-term care services they want?

Brilliant. I’m all for it. Let’s go! But, hey, we alreadyhave that. It’s called private long-term care insurance. It’s actuariallysound; it’s responsibly underwritten; it sets aside real money in carefullyinvested reserves; it’s bitten the bullet and adjusted premiums up so it canpay all claims in the future, unlike all the government programs that areunfunded to the tune of trillions of dollars. What’s not to like? Just stopgiving away long-term care through inferior government programs and people will buy thisproduct.

Oh, say the CLASSicists, why tie US down with all thosetroublesome restrictions? Let’s have another government “insurance”program, but free it up from all the constraints that make private insurance sohard to design and manage.

In fact, let’s have no underwriting; let’s coveranyone 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 acovered person’s lifetime; let’s make them pay premiums for five years beforethey vest for benefits so we can build a big “trust fund.” Great. Andfor the CLASS logo, how about a “Yellow Submarine?”

Now what if this blows up in their faces? What ifpoliticians steal the “trust fund” as they’ve done Social Security’sand 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 aboutall 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 changeall the rules arbitrarily whenever necessary. Can’t make the numbers work witha 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 withpeople who believe in the “Good Fairy of Long-Term Care?”

Garner closed her remarks with a challenge. If youdon’t like the CLASS Act, then you need to suggest something else. OK. I acceptthe challenge. Stop giving away what the insurance industry is trying to selland you can have a dominantly private-pay LTC system based primarily on homeand community-based care with a financially healthy safety net program forpeople truly in need. But build more of your deficit-financed governmentcastles in the sky and the whole superstructure will collapse sooner ratherthan later.

Up next was Paul N. Van de Water, Senior Fellow at theCenter on Budget and Policy Priorities. He brought up the fascinating questionof whether or not the “reserves” built up by CLASS in the first fiveyears, while it’s collecting premiums, but paying no benefits, can rightfullybe considered to reduce the federal deficit. Answer: no problem as long as youalso 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 “healthreform” will “bend the curve” downward for the overall healthcare system in the future, then you can have your cake (CLASS deficitreduction) and eat it too (lower costs overall in the long term). Next he movedsmoothly into promoting a prospectus for investing in a bridge across swampland. Uh, just kidding about that last one.

Four more speakers offered comments on CLASS from theperspective of various interest groups, i.e. the administration, AARP, long-term care providers, and disability advocates. In a nutshell, they like the CLASS Act butthey didn’t add very much new to what was already presented. So check them outif 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 tocafeteria plans has a chance. Garner allowed as how it’s important toencourage private LTC insurance. But no commitment.

Bob Rosenblatt, a freelance writer, asked if there wouldbe any restrictions on how one’s $50 benefit could be used? Garner saidthey’ll have a “suggested list of services.”

Yours truly commented that not a single word of criticismwas 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 crowdsout up to 90% of the private long-term care insurance market, why do they think CLASSpolicies will fare any better? Three of the panelists replied, more than forany of the other questions.

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

Howard Gleckman of the Urban Institute asked a follow-upto my question about the likely participation rate with a $125 per monthpremium. Garner said they got no focus group “kick back” fromyounger people over the $60-every-two-weeks premium level.

Josh Wiener of the Research Triangle Institute queriedhow the subsidy for low income people would work. Ms. Garner said there is nosubsidy, but what’s interesting about the CLASS Act’s CBO “score” isthat 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 willsave Medicaid $1.2 billion over ten years. LTC Comment: Right, and governmentprognosticators really nailed the cost of Social Security, Medicare andMedicaid too. Not.

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

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

There were two other questions, but my mind wandered tothe Chesapeake Bay hard-shell crabs I was planning to attack for lunch, beforeracing 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 scrutinizethe proposal carefully from every angle before taking the plunge into a hugenew government program.

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