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Research desk explains: What is the CLASS Act?

By Dylan Matthews

Patrick_M asks:

What is the truth about the CLASS Act?

Before I get into the debate over the CLASS Act, I should explain what it is. The Community Living Assistance Services and Supports Act is a provision of health care reform that sets up an insurance system for long-term care for the disabled and elderly. This can include home care, nursing home payments and so forth. The act is intended to be self-financing, with an average monthly premium of $123, and an average daily benefit of $75. What premiums do not cover would be made up for in decreased Medicaid spending, as that program has covered many of these same treatments in the past.

The Congressional Budget Office estimates (pdf) that the act would reduce the deficit by $72.5 billion through 2019. That said, the CBO also warns that after 2020, costs will start to outstrip premiums by enough to add to the deficit in the long term more than it subtracts from it in the short run. The CBO notes, however, that the Department of Health and Human Services has wide latitude in changing premiums and average benefits, which could keep the program solvent.

The problem is one of adverse selection. The CBO is concerned that not enough healthy people, receiving under the $75 a day average, would enroll in the plan, which would limit the number of people paying more than they're getting out. To make up for that, either premiums would have to rise, benefits would have to fall, or the government would have to start financing the act out of general tax revenue.

As one would imagine, this problem has provoked some disputes about the merits of the bill. Bruce Riedl of the Heritage Foundation argues that this shortfall sets the CLASS Act up for a future bailout, as future revenue increases become politically unpalatable. But as Howard Gleckman responds, some simple changes to the Act could drive prices way down. The Affordable Care Act addresses adverse selection by requiring coverage; doing the same with long-term health insurance could push premiums all the way down to $40 a month.

Helpfully, the SCAN Foundation has created a Web applet that allows you to design your own version of the CLASS Act and see what the effect on the budget deficit, coverage of the disabled, premiums, and so forth would be. You can specify how much of the plan you want to fund through premiums, what subsidies you want the poor to receive, what average benefit you prefer and more. It's the sort of thing I wish existed for every Research Desk question, so check it out, play around and settle on your ideal proposal.

By Ezra Klein  |  July 29, 2010; 5:36 PM ET
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$75/day payout is pretty dang small. From what I've seen from looking into care for my parents is that it's hard to find much for less than $125 a day and goes up to around $250 or more. A day. And this is not covered by medicare.

Posted by: MingoNW | July 29, 2010 5:57 PM | Report abuse

MingoNW, you are correct. We had to place my husband's mother in a skilled nursing facility, and the cost was in the range of $7,000+ per month (not a fancy, but a very good facility). That's about $250 a day. We found one other that was a bit cheaper, but definitely not as nice. We knew if she survived long enough she would run through every cent of her savings and the costs then would be picked up by Medicaid. (You really do have to get down to zero assets). We decided to go with the better facility and use up the money a bit faster. When that eventually happened, Medicaid did pick up the tab and she got to keep her room, her nurses, etc. for the last crucial months of her life.

$75 a day helps, but it certainly won't pay the tab for someone who needs full-time skilled nursing care.

Posted by: JJenkins2 | July 29, 2010 6:28 PM | Report abuse

Echoing two comments above -- I have a family member in long-term semi-skilled care in an area with relatively low cost-of-living and the cost of care is still $320/day (4 times the $75/day CLASS benefit).

I'm not aware of any reasonable person who sees advantage to Dodd's CLASS program: even the CBO was admittedly quite generous in its initial evaluation (which has been duly recomputed following passage). Under the PPACA, Alzheimer's patients really suffer.

Posted by: rmgregory | July 29, 2010 6:47 PM | Report abuse

Mcgregory: I see an advantage to the CLASS act for less severely disabled people and elderly. It could help to pay for a caregiver to come by for an hour a day to help with bathing or eating or meds for someone otherwise capable of living at home. And that's a good thing.

Posted by: JJenkins2 | July 29, 2010 7:10 PM | Report abuse

The simple changes that would bring premiums down to $40 a month include mandating millions of employees to participate and it's unlikely millions will agree to what amounts to a payroll deduction of $480 a year.

We encourage individuals (especially those in their 50s) to check out what CLASS coverage may cost. If one is in pretty decent health and qualifies for good health and marital discounts almost any insurance policy will provide more coverage for less dollars.

Jesse Slome
Executive Director
American Association for Long-Term Care Insurance

Posted by: jesseslome | July 29, 2010 7:16 PM | Report abuse

--"The problem is one of adverse selection."--

That's the usual collectivist complaint. It's why the Soviets had to build a wall across Berlin and install guards to shoot people trying to escape.

All you need for your CLASS Act, HarvardBoy, is a law threatening impoverishment or incarceration to any reluctant citizens. Should work wonders.

All in the name of giving people what's best for them.

Posted by: msoja | July 29, 2010 8:25 PM | Report abuse

You've got to be kidding me. How you can write this post without addressing the basically fraudulent scheme of using class act revenues to pay for health reform? The class act "reduces the deficit" only on a cash flow basis. That 70 billion surplus of premiums over revenues in the first decade is balanced by an equal 70 billion deficit in later periods. This is not me questioning assumptions or speculating, it is a simple mathematical fact, since the program is designed to have actuarially equivalent premiums and benefits. So using that 70 billion to pay for ppaca means that at some future date there will be a 70 billion dollar shortfall in the class act trust fund, a shortfall that will need to be filled out of general revenues. In short, what this means is that one of two things must be true: the class act is an indulged entitlemm program that is certain to increase future deficits, or the 70 billion dollars in excess premiums cannot be used to fund health reform. You can't have it both ways. I can't believe you'd write this post without addressing that.

Posted by: ab13 | July 29, 2010 10:15 PM | Report abuse

Gah, trying to type a long comment on my phone. Third to last sentence should say: of two things is true: the class act is an unfunded entitlement program....

Posted by: ab13 | July 29, 2010 10:24 PM | Report abuse

"Before I get into the debate over the CLASS Act, I should explain what it is."

And how accurate can we expect Klein's explanation to be? He can't even cite an author without getting his name wrong. "Bruce" Riedl of the Heritage Foundation? Try again, "Esra."

Posted by: newshound11 | July 30, 2010 9:31 AM | Report abuse

Yeah, this answer is pretty much a weaker version of the CLASS Act defense that you linked to the other day.

Saying "if it worked differently it might work" isn't really an argument at all. Requiring every American to enroll in a given program is not "a simple change."

Posted by: eggnogfool | July 30, 2010 9:58 AM | Report abuse

As far as avoiding adverse selection, it might help to give lower premiums to those who enroll while they're young. My husband and I both enrolled in the federal employees' LTC program when he got a federal job, even though we're several decades away from the time when we're likely to need such care. The cost gets much higher if you enroll when you're in your 50s or 60s - and they also waive the medical underwriting if you enroll when you're first hired.

Of course, I had just taken a health policy class in which my professor referred to long-term care as the "ticking time bomb of healthcare," so I was more motivated to sign up for this than others might be. Will most 30- or 40-somethings who can afford the premiums make the same choice? It'll probably take a lot more education and outreach - for one thing, making people realize that Medicare doesn't cover LTC.

Posted by: Liz_B | July 30, 2010 12:58 PM | Report abuse

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