long term care reform: November 2009 Archives

The CLASS Act, the plan to create a national voluntary long-term care insurance program, is now included in both the House and Senate versions of health reform. So that means it will pass this year, right?

Not so fast. There once was a time when provisions included in both the House and Senate versions of a bill were almost certain to become law. But these days, everything is up for grabs, and key elements of overall health reform, including CLASS, won't be decided until the final version of the bill is written behind closed doors--probably early next year.

The fate of CLASS will be decided by about a half-dozen Democratic senators. Several--including Kent Conrad of North Dakota, Ben Nelson of Nebraska, and Mark Warner of Virginia--oppose the measure, in part because of their concerns about its budgetary cost and in part because they are representing the interests of some big private insurers in their states. The other key lawmaker will be Senate Finance Committee Chairman Max Baucus (D-Mont), who has been cool to the idea throughout the health debate.

Sources say that opponents will propose dropping CLASS for this year's health bill and, instead, request the Adminsitration study the nation's long-term care financing needs and propose a set of reforms in a year. The key for supporters of CLASS is to find a senator who will demand the provision remain in the bill as the price for voting in favor of overall reform.

CLASS is now in the hands of the backroom dealmakers. My guess is that it has a 50/50 chance of surviving.

The national long-term care insurance program called the CLASS Act will be included in the Senate Democratic leadership health reform bill that is expected to be released within the next day. The decision by Democratic leader Harry Reid to add CLASS to the bill is a huge victory for backers of the measure, which is already in the House-passed bill. However, many steps remain before the idea becomes law.

CLASS would provide a government-sponsored basic cash benefit to those needing long-term care services at home, in assisted living, or in a nursing facility. All workers would be automaticaly enrolled, although they'd have the right to opt-out of coverage. The design of the policies, including premiums and benefits, would be left to the Secretary of Health & Human Services.

The proposal is strongly opposed by many private long-term care insurance companies.   

In a Nov. 13 report, Chief Medicare actuary Rick Foster estimates that the CLASS Act--the proposed national long-term care insurance program--faces "a significant risk of failure" because few would buy the coverage, and those who do would likely have high long-term care expenses. This phenomenon, called adverse selection, would drive up the cost of premiums and further discourage healthy people from buying coverage.

The study will be very influential on Capitol Hill. Yet independent analysts say it is far too pessimistic. As one long-term care health economist told me this morning, "Actuaries lack imagination." For more on the pros and cons of CLASS, check out my Kaiser Health News column from this morning   

Foster projects only about 2.8 million people would purchase the voluntary insurance--about 2 percent of potential participants. One reason: He estimates the average premium would be a steep $180 per month. Because so few would buy insurance, Foster estimates that CLASS would do little to reduce Medicaid long-term care costs.

In addition, he projects that 10-year net revenues for the program would be only about $39 billion--a little more than half of an earlier Congressional Budget Office estimate. Most of that, he concluded, would be during the first five years when CLASS would be collecting premiums but not yet paying benefits (the program would require people to pay premiums for five years before becoming eligible for benefits). After 2025, he says, the program would lose money.

Foster's estimate of the number of people who would participate in CLASS is lower than CBO's and even lower than the insurance industry. Both projected about 5 percent would buy.

Privately, however, some long-term care experts think the participation rate could be as high as 20 percent, but only if average premiums could be held below $100 per month.

The Medicare study identifies the key challenge to the CLASS advocates. Many economists and actuaries believe a national long-term care program works best when everyone is required to participate. The premium for such a mandated program would be very low--perhaps averaging as little as $45 per month, according to several experts. Most industrialized countries--including Germany, Japan, and France--have already adopted such a system and consumers are very happy with it. Unfortunately, it is hard to imagine that Congress would enact such mandatory insurance as part of health reform.

I agree with those who think the actuaries are being overly-pessimistic and I believe participation in a well-designed program will be much higher than they project. But Foster, CBO, and the industry all identify real problems with a voluntary system. Thus, CLASS backers face a tough choice: pass a second-best program that runs the risk of failure, or come back again in a couple of years with a better plan. Welcome to health care politics, 2009-style.