FAQ: What Factors Affect The Future Of CLASS – The Community Living Assistance Services And Supports Act

The future is increasingly uncertain for the CLASS Act, a controversial long-term care insurance program created by the 2010 federal health law and championed by the late Sen. Edward Kennedy, D-Mass.

The Department of Health and Human Services has promised to release in mid-October a detailed analysis of what can be done to shore up the program’s financial structure, based on a review of legal and actuarial reports.

This step acknowledges charges made by CLASS critics that the program is not fiscally self-sustainable and will be a drain on the federal budget. Republicans, in particular, have pushed for its repeal. But advocates say modifications can be made to ensure no taxpayer dollars are used to pay for it. This tension has cast shadows on the program since early in the health reform debate, and recent events have further complicated its outlook.

Late last month, for example, HHS reduced the CLASS office staff, and the Senate Appropriations Committee approved a draft spending measure that cut funding for the program’s planning and implementation.

Advocates are struggling to make sense of these signals and are nervous that the administration may be on its way to shelving the program for good. They also are concerned that CLASS could be targeted by the congressional deficit reduction “super committee” in its effort to trim federal spending and home in on entitlement programs. Supporters are quick to note, though, based on previous Congressional Budget Office estimates, repealing CLASS would actually add to the deficit over the debt panel’s mandated 10-year budget window because in its first years it takes in premium payments but doesn’t pay any benefits until 2017.

Here’s a guide to the CLASS provisions that trigger questions about its financial viability and the possible fixes that are currently being considered.

Why do supporters think CLASS is needed?

The goal of the CLASS Act is to help people pay for long-term care with an emphasis on allowing them to remain in their own homes by providing a cash benefit averaging no less than $50 a day.

Currently, Medicaid, the state-federal health insurance for low-income people, accounts for almost half of the nation’s long-term care spending. Meanwhile, the number of people who need such services is expected to increase significantly as the baby boomers age, from 10 million now to an estimated 15 million by 2020, adding to Medicaid’s financial burden. Meanwhile, only about 8 to 10 percent of Americans have private long-term care insurance policies. Supporters view CLASS as a way to begin addressing this issue. “If anyone’s got a better idea, tell them to step forward,” said Larry Minnix, the president and chief executive officer of LeadingAge, an association of 5,600 not-for-profit aging organizations.

What factors could keep CLASS from paying its own way?

As written into law, the program purposefully set a low eligibility bar to achieve broad participation, including working people who have disabilities as well as those who are planning for their future needs. But experts fear people at highest risk will be more likely to participate, thereby driving premium costs up and discouraging healthy people from choosing to enroll.  Ultimately, critics worry taxpayers could be on the hook if premiums fall short of covering benefit costs.

According to the American Academy of Actuaries, provisions of CLASS will encourage this outcome, known as adverse selection, and will reduce the chance that the program will be financed entirely by premium contributions paid by working adults. For starters, participants only have to meet fairly low “at-work” requirements — under the law people could qualify if they earned as little as about $1,200 annually. They must also pay into the program for five years, and be working for three of those years, before being able to receive the cash benefit. In addition, neither underwriting practices nor pre-existing conditions exclusions can be used to prevent participation.

What are some ideas about how to fix the program?

HHS officials have said the implementation of CLASS will not proceed if it is not “fiscally solvent, self-sustaining, and consistent with the statute,” and that they are exploring fixes, such as partnering with employers to encourage worker participation to broaden the pool of healthy enrollees, changing the employment and earnings qualifications requirements, and indexing premiums so they would rise with inflation.

But, the ideas HHS has so far discussed publicly are only half-measures, according to Steve Schoonveld, who represents the actuaries on CLASS issues.

If the program is to have a chance at success, major changes are necessary, according to the actuaries, such as strengthening the at-work definition to require at least 20 to 30 hours of work each week — rather than relying on the low salary threshold — to mitigate the risk that only those already in need of care will enroll. The actuaries also urge instituting benefit duration limits, and using a reimbursement system rather than paying cash so that money is tied to specific approved expenses.

Would the program’s scope change as a result of these kinds of modifications?

Minnix said that advocates are open to modifications if it means CLASS gets off the ground, but that they won’t be able to evaluate whether the changes are acceptable until they see details.

One likely risk: Many of the changes now being discussed would end up excluding some people with disabilities who are employed, but who have limitations that would make it more difficult for them to meet the more stringent work requirements. This population is one of the groups the program was designed to help.

Howard Gleckman, a resident fellow at the Urban Institute, said this may not be an easy outcome for advocates to accept, but that it’s a necessary one. “If you don’t make these changes, the program will die,” he said. An entirely different program ultimately may be needed to give working people with disabilities long-term care coverage, he added.

Meanwhile, making any adjustments that require changing the Affordable Care Act is a practical impossibility in the current political climate.

Connie Garner, executive director of Advance CLASS, a coalition of groups that supports the program, and a long-time Kennedy staff member, said that, regardless of political pressures, the problems plaguing the long-term care system won’t go away if CLASS falls through. “We need a system other than Medicaid that will allow us to plan for that unknown, and private insurance can’t do it alone,” she said.

Matt Salo, executive director of the National Association of Medicaid Directors, echoed this concern, saying that states have long worried about spiraling long-term care costs, and the burden is only going to get worse without exploring more options like CLASS concept. “Long-term care is what will break Medicaid’s back,” he said.