In an important speech for those interested in the future of the CLASS Act, federal Department of Health and Human Services Secretary Kathleen Sebelius said today that the program must be self-supporting but conceded that, as designed, it may not meet that goal.
"The program must be able to pay for benefits over the long-term with the premiums it takes in,' she told the Kaiser Family Foundation. "No taxpayer dollars will be used to pay for CLASS benefits.This is non-negotiable."
At the same time, however, Sebelius said she was open to major changes to the program and acknowledged that the national, voluntary long-term care insurance system that was included in the 2010 health reform law "is not perfect." And, in an apparent nod to critics, said "it would be irresponsible to ignore the concerns about the CLASS program's long-term sustainability in its current form."
To respond to those fears, she suggested that HHS has broad authority to restructure key provisions of the law. Sebelius said that, besides sustainability, CLASS contains only two other "key principles." The first is that consumers must have the ability to direct their own services--a reference to CLASS' cash benefit. The other is that there should be no traditional underwriting for health status such as is included in private long-term care policies.
However, she explicitly opened the door to other highly controversial changes to the law. These include tightening its "at work" requirement, changing its premium structure, and assisting employers who offer CLASS benefits to their workers.
The biggest change would make it tougher for some people with disabilities to enroll in the program. The law allows anyone 18 and older to sign up for CLASS as long as they earn just $1,100 a year, which makes it possible for many working people with disabilities to buy coverage. This is an extremely important change for them, but such a flexible standard has been sharply criticized by industry actuaries.
The problem is that this design may mean that those buying CLASS insurance will be more likely than average to claim benefits under the program. If that happens, the government will have to increase premiums to pay those claims which in turn will discourage healthy consumers from buying coverage. This will eventually lead to a "death spiral" that will destroy the program.
Sebelius said her office is reviewing that at-work requirement, although it is unclear how much flexibility she has to change it without an amendment to the law.
Other changes she is considering include:
Replacing a flat premium with one that increases annually with inflation. This postive change would allow for relatively low initial premiums, especially for young buyers.
Imposing anti-gaming rules. These would prevent consumers from going in-and-out of coverage during their lives without paying penalties.
Easing the burden on employers that offer CLASS insurance. This could be another key change. The law automatically enrolls workers in CLASS, but only if they get coverage through their job. Currently, however, the law includes no incentives for employers to participate.
Creating an aggressive marketing campaign for long-term care insurance. This change could attract broad insurance industry support. But coming up with the funding will be a huge challenge, especially given severe budget pressures and the strong opposition to CLASS from congressional Republicans.
Tailoring benefits to individual needs. The law appears to require Sebelius to approve only a single policy. But today she suggsted she might have the flexibility to approve multiple coverage options. This could be another key change.
Sebelius' speech today was a major acknowledgement that CLASS as currently designed is in deep trouble--both politically and as an insurance program. By recognizing the flaws that some of us have been noting for more than a year, she has taken the first steps towards making CLASS successful. The question now is whether it is not too late given the broad opposition to the program that has been building for months on Capitol Hill.