The Community Living Assistance Services and Supports (CLASS) is a voluntary long-term care program that was included in the Affordable Care Act. The idea was that workers could pay a monthly premium which would eventually entitle them to monthly cash payments should they become disabled. As TCF fellow Harold Pollack described it, "Recipients could use this money to buy ramps and other equipment, assistance from home health care workers, and other goods or services that promote independence and personal well-being."
Yesterday's bipartisan budget deficit reduction plan that calls for "slashing $3.7 trillion over 10 years" would repeal the CLASS Act in its entirety, in effect pulling the rug out from under the program before it even had a chance to get started. In his most recent post on TCF's Taking Note blog, Pollack says he's not surprised–given Senators Kent Conrad (D-ND) and Max Baucus's (D-MT) dislike of the program. "The depth of opposition among fiscal conservatives is exemplified by Senator Conrad’s description of the CLASS Act as 'a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.'"
Below, a guest post on the repeal by Howard Gleckman, Resident Fellow at the Urban Institute and author of the book "Caring For Our Parents,"
Bipartisan Senate Budget Plan Would Repeal CLASS
A bipartisan deficit reduction plan proposed by the so-called “gang of six” Democratic and Republican senators would repeal the Community Living Assistance Services and Supports (CLASS) Act. CLASS, a national, voluntary long-term care insurance program, was included as part of the 2010 health law. The new budget plan, which President Obama called a “very significant step” also proposed significant, but unspecified cuts in Medicaid as well as other unidentified reductions in non-Medicaid social service programs.
Today, more than 40 percent of all long-term care is funded by Medicaid which is itself under tremendous financial stress. While CLASS is deeply flawed, it is an opportunity to transform long-term care from the means-tested Medicaid program to an insurance-based system. If CLASS is repealed, that opportunity will be lost, and millions of Americans will find themselves with only a shrinking Medicaid benefit to support them in frail old age or if they become disabled at a younger age.
The ultimate fate of the broad budget proposal is unknown. It would reduce the federal deficit by about $3.6 trillion over 10 years and is seen by some, including Obama, as a way to break the debt limit impasse that has divided Washington for months.
CLASS has been a target of both Republican and Democratic deficit hawks since was enacted, largely because they feared it would fail as an insurance program and eventually have to be bailed out by taxpayers. They also objected to budget accounting rules that made it seem as if CLASS was generating about $78 billion in new revenues that would be available to pay for health reform.
The Obama Administration has been struggling to design a CLASS insurance policy that would attract enough consumers to make the program self-sustaining. However, major design problems left many insurance experts skeptical that premiums would ever be affordable enough for broad participation.
While advocacy groups such as Leading Age, which represents some non-profit long-term care providers, immediately urged the CLASS repeal be dropped from the budget bill, I suspect their concerns will fall on deaf ears. CLASS is a tiny piece of a huge fiscal package and I see no one on Capitol Hill willing to defend it aggressively. With Obama and Congress looking for a way out of fiscal gridlock, CLASS will likely be lost in the noise of the bigger budget debate.
If so, CLASS will be remembered as a sadly missed opportunity, and those of us who worry about how the nation will fund long-term care will find ourselves back at square one.
“CLASS has been a target of both Republican and Democratic deficit hawks since was enacted, largely because they feared it would fail as an insurance program and eventually have to be bailed out by taxpayers. They also objected to budget accounting rules that made it seem as if CLASS was generating about $78 billion in new revenues that would be available to pay for health reform.”
Both concerns are legitimate in my opinion. Even private long term care insurers are finding that they underpriced many policies in the past as people live longer, including with chronic conditions that inhibit their ability to perform routine activities of daily living (ADL’s). Some insurers have since exited the business. When my wife and I bought long term care insurance nine years ago, the premium for the two of us was slightly under $3,600 per year. My insurance agent recently told me that the same policy for me alone, assuming I could qualify for it, would cost over $6,400 per year now.
It’s highly unlikely that CLASS could be structured as a program that could be sustained by premiums alone and still affordable for most people, especially without medical underwriting. If it went into effect and then ran into financial trouble, taxpayers would be expected to bail it out. It should be repealed as it never made financial sense in the first place.
I agree with you Barry. It was not voluntary, no one still knows what they would have to pay through payroll deductions at work and having to wait for five years for a claim was considered by many to be just another tax.
Naomi–
Thanks very much for highlighting what is happening to CLASS.
I am very sorry to see CLASS go. We desperately need a solution to long-term care.
In the past, my sources (doctors concerned about long-term care) have told me that ultimately, it probably would have to become a mandatory program, and if it were, the payroll contributions(which would be a percentage of your pay) would be very affordable for the middle-class.
There is also a possibility that CLASS, which is now voluntary, could do well as a voluntary program, at least for a while, because under the current law, unless people make a decision to “opt out,” deductions for CLASS would automaticallly be taken from their paychecks, just as money is deductibed for Social Secruity & Medicare.
If the deductions were relatively modest, many young people who don’t really look at their paychecks might not bother to “opt out.” Wise young people might well realize that over the long term, their CLASS savings could prove valuable.
(This would be a way to get CLASS started while getting people accustomed to the deduction.)
The key to the CLASS idea is that if people begin making modest contributions to CLASS when they are in their 20s, over time, the “miracle of compounding” will generate huge sums.
CLASS was set up for younger and middle-aged people. You have to be contributing for a certain number of years before it begins to pay out. There was no plan for CLASS to being paying out immediately.)
We all know that if you save a small amount, every month, beginning when you are very young, it is possible to generate a suprising amount of money.
But very few of us do this—unless we have mortgages.
Home mortgages represent a form of “enforced savings” and traditionally, over 30 years, a couple could pay off their home and own it free and clear when they retired. This gave them much greater security than most seniors have today.
In the past two decades too many people have constantly refinanced their homes, reducing their equity. Others moved up to more expensive homes, taking on “interest only” mortgages that they could not afford.
But if CLASS became mandatory, it would “enforce savings” much the way mortgages once did.
It would be a very progressive way of financing long-term care: the deduction would be a fixed percentage of everyone’s salary. The middle-class would pay less than the rich.
Moreover, if everyone had to begin making contributions as soon as they began working, those contributions should not be a serious burden for anyone– poor, middle-class or rich.
Time would generate the savings needed. Over 40 or 45 years, the “miracle of compounding,” truly is a financial miracle.
Conservatives object to CLASS in part because this means that the rich become involved in paying for long-term care for the poor.
But the fact is that the rich are already involved as they pay state and federal taxes to support Medicaid–the program that supports most long-term care in nursing homes.
(Palliative care specialist Diane Meier points out that as we move away from nursing home care for many seniors–and toward home-based care and community living centers for people who do not need skilled nursing care–CLASS might well cover the long-term care needs of many seniors. )
Another reason that conservatives dislike CLASS is that, most likely, the money would be invested in safe, fixed rate investments (government bonds, held until they mature.)
Many conservatives would prefer to see any money that families save wind up on Wall Street, invested in stocks and mutual funds that generate huge fees for Wall Street companies. (No one on Wall Street makes much money on Treasuries. And if CLASS invested in Treasuries there would be no fees.)
Conservatives would like to see Social Security privatized for the same reason. If all of that money was invested on Wall Street, the financial industry would make a fortune.
Of course, in a long bear market (for example 1970 through 1986) Social Security would lose a fortune and SS pay-outs to retirees would have to be cut.
See Bull! for charts and tables showing that, even during the long bull market of 1982 to 1999, investors would have done just as well in Treasuries– while losing less sleep.
Bull! also offers data on average rates of return during long bull and bear market cycles. The notion that “over the long term, U.S. equities return more than any other investment” just isn’t true.
Barry and Henry:
(Pardon my expression Naomi and Maggie) So f*cken what if, if we subsidize long term healthcare. It is something which is desperately needed in the community for the middle income and the low income brackets. Baucus was in favor of TBTF and now wishes to deny those who bailed out TBTF the right to long term healthcare which has become more expensive due to the the healthcare industry. Conrad is for selling out the very same income brackets to balance the budget and get a new debt ceiling.
The answer is no and let the Repubs sink as a political party within the US.
run75441 —
A new AARP sponsored study pegs the value of unpaid care giving by family members at $450 billion in 2009 which is equivalent to approximately half of all federal revenue from the income tax. If long term care were paid for by federal insurance, people would come forward by the millions to claim benefits rather than provide free care at considerable personal sacrifice – both financial and emotional. The suggestion that long term care should be subsidized by taxpayers without means testing is yet another example of the failure of liberals to recognize how much it would cost to provide what they are advocating for and who is supposed to pay for it. Here is the link to the study:
http://www.aarp.org/relationships/caregiving/info-07-2011/valuing-the-invaluable.html
Maggie —
Regarding the miracle of compounding, it only works when there are real resources set aside and invested in real financial assets. Accounting balances in so-called trust funds are not resources available to pay bills until real Treasury securities are sold to public investors and interest payments are made in cash as opposed to bookkeeping entries to an electronic ledger. CLASS premiums would be immediately spent just like all other federal revenue while we would continue to borrow huge sums beyond that to pay the rest of our bills.
The danger for the affordability of social LT care programs is that they will creep to include too much so that too many people will utilize the program for too long. However, if we look at the really costly parts of long term care that cannot be provided outside of professional institutions, we are left mainly with nursing home care and maybe extreme assisted living needs. I don’t believe that many people spend too long in nursing homes before they die, but the ones that do will be bankrupted quickly ($110,000/ year in eastern Mass!). Therefore, IMO, a mandatory program with everyone in and paying during their working years should relieve a lot of stress on most families, but the umbrella of what is covered must be limited to the hardcore definitions of nursing home or very near nursing home needs!
ng –
I don’t think it is as simple to draw the line for what’s covered and what isn’t as you suggest. For example, suppose you have someone who is just frail and can’t do several ADL’s but either takes no medication at all or maybe just one drug for blood pressure control. This person can’t function on their own without help. They might need $50K per year worth of home health assistance which wouldn’t be paid for under your criteria. However, if either a physician or a social worker certified that the person needs long term care, we would pay $110K annually (in Eastern MA) for nursing home care.
Second, if we were to, in theory, replace private commercial health insurance with payroll tax financing but leave the current Medicare and Medicaid programs intact, it would cost on the order of 15% of payroll. Even if it is all nominally paid by the employer, most economists agree that the employee actually pays it in the form of lower wages than would otherwise be paid. To add a required long term care benefit would probably cost another 1.5%-2.0% of payroll at a minimum. Current FICA taxes are already 15.3% of payroll (employer and employee share combined) up to a maximum of $106,800 per year while the 2.9 percentage points of FICA taxes that are dedicated to Medicare Part A financing applies to all wages. Just how much of a young person’s income should they be expected to fork over to pay for a benefit that they won’t access for decades when they’re already earning a comparatively low entry level salary and probably have school loans to repay and are looking ahead to getting married, buying a home and starting a family? Well intentioned compassion needs to be paid for by someone. Enough is enough.
Barry,
Remember much of current Medicaid spending is for nursing home care, so if a separate nursing home national entitlement was begun, Medicaid would become much cheaper as a program and more focused where it should be, namely on medical care.
As for the boundary of what is covered, I am not in a position to figure that out here and now, but think it could be reasonably done. I just think there is a lot of suffering now overall in this long term care arena, and trying to solve the very worst, nursing home needs, would still help even if the assisted living was left the same as now or just covered by private endeavors. I still believe that Just covering true nursing home needs ONLY would not be expensive if all people paid into just that program all their working life!