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Envisioning A Post-CLASS Long-Term Care Insurance Program



October 17th, 2011

As has been widely reported, the Department of Health and Human Services announced on Friday that they would stop implementing the Community Living Assistance Services and Supports (CLASS) program the long-term care program included in the Affordable Care Act.

“For 19 months, experts inside and outside of government have examined how HHS might implement a financially sustainable, voluntary, and self-financed long-term care insurance program under the law that meets the needs of those seeking protection for the near term and those planning for the future,” wrote HHS Secretary Kathleen Sebelius to Congressional leaders. “But despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time.” The financial issues dogging the program have been well-documented, but so has the need for long-term care that the program was meant to address.

So what now? One possible answer to that question was provided by Howard Gleckman, a resident fellow at the Urban Institute and the author of Caring For Our Parents, in an interview with Health Affairs Blog. (See also this piece by Gleckman for Kaiser Health News.) The real solution, Gleckman says, would be to replace CLASS’s system of voluntary enrollment with a universal system, “which is a system that every other country in the developed world has already,” except for the United Kingdom. By eliminating adverse selection problems, such a system would likely lower premiums by 50 percent. However, that would require mandating that everyone participate, which is politically unrealistic given the controversy over the Affordable Care Act’s “individual mandate” that requires most people to purchase health coverage.

Mimicking A Mandate Without A Mandate

The trick, then, says Gleckman, is to get as close as possible to a mandate without actually having a mandate. Gleckman suggests a possible model in which private long-term care insurance options would be offered “in a highly regulated and transparent environment,” somewhat akin to Medicare Part D, with penalties in the form of higher premiums the longer one waited to purchase coverage. Gleckman cautions that he is not an actuary, but, he says, “It’s possible that you could include enough carrots and sticks that you could get enrollment high enough and get a risk pool good enough that this might work. It’s still a poor substitute for a mandate, but it may be the best we can get, and it has at least some chance of succeeding where CLASS didn’t.”

The private long-term care insurance market is a “disaster,” Gleckman says. It only has about 7 million covered lives and has not added any net new lives in years. People aren’t entering the private long-term care insurance market “for a number of reasons. One of them is that it’s too expensive. One of them is that they don’t understand it. And the other is that this is a risk people don’t want to think about.”

A new program along the lines Gleckman suggests could “certainly deal with the second issue,” he says. “We know how to sell private insurance in a transparent regulated way.” Gleckman says resolving the price problem will depend on how many people you can get into the risk pool. “This is the classic chicken and egg problem of insurance: If you can get a good enough risk pool, you really ought to be able to get the price down.”

On the third issue, persuading people to think about reaching the point where they will need long-term care, Gleckman notes that the government had asked for $120 million to market CLASS and to get it going. “Imagine if the government spent $120 million to market the need for long-term care,” he says.

Benefiting From Medicaid’s Misfortune

In a perverse way, the budget cuts facing Medicaid could give a boost to a hypothetical replacement for CLASS. “It’s going to be very transparent to people that among the Medicaid benefits that are going to get cut over the next few years is the long-term care benefit. Most research suggests that people don’t even know that Medicaid pays for long-term care, but there’s going to be so much discussion over the next couple of years about what’s going to happen to this benefit that it may actually raise public awareness and make people somewhat more interested in self-financing that risk,” Gleckman notes.

Medicaid cutbacks could also give a boost to a new national long-term care insurance program in another way, Gleckman says. Private long-term care insurance firms have “really tied their marketing to Medicaid” through the “partnership” program. This program, which was started in four states in the 1980s and has now spread to about 35 states, allows people who purchase long-term care insurance to become eligible for Medicaid while preserving more of their assets than normally allowed. “Medicaid is going to become less and less generous, which could create a problem for [private insurers], but conversely could create something of an opening for a national program,” Gleckman observes.

Other Approaches To Boosting Enrollment

Gleckman discussed other mechanisms that might increase enrollment in a new national program that would replace CLASS. One such mechanism, suggested initially by Paul Van de Water of the Center on Budget and Policy Priorities and cited favorably by HHS, would be an inflation-adjusted premium that would grow a little every year, rather than the level premium that has become standard in the American long-term care insurance market. “This allows you to start with a very, very low premium for young people. If you can market it to them as four Starbucks a week, maybe they’ll go for it,” Gleckman says.

Gleckman also discussed the benefits of an opt-out approach, which would avoid a mandate but would include people in a new long-term care insurance program unless they affirmatively decided not to participate. CLASS took an opt-out approach, but only when the benefit was offered through an employer. “The trouble was that there was no mandate for employers to participate,” Gleckman notes, and “employers have so much else going on with the rest of the ACA that they didn’t care about this,” particularly given the lack of demand from employees.

One way to remedy this problem, of course, would be to include mandate employer participation, but – like a new individual mandate – that is politically unrealistic. Another option would be to incorporate an opt-out provision in a system that bypasses employers. Gleckman notes that some have discussed the idea of bypassing employers by tying a CLASS replacement into the Social Security system. “One idea might be that you could trade off a little bit of your traditional Social Security benefit for a long-term care benefit, and you might even be able to do that without paying a higher payroll tax. Or you could imagine a system where you paid a slightly higher payroll tax – not so much that people would notice, maybe a half a percent or something like that — and then also bought down a little bit of your Social Security benefit,” he says.

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1 Trackback for “Envisioning A Post-CLASS Long-Term Care Insurance Program”

  1. A few ideas on expanding LTC insurance | The Incidental Economist
    October 18th, 2011 at 6:19 am

1 Response to “Envisioning A Post-CLASS Long-Term Care Insurance Program”

  1. Weiwen Ng Says:

    Actually, I believe that the Secretary already explored an indexed premium. The biggest problem for CLASS is that it is disproportionately attractive to younger individuals with disabilities. For example, a typical long-term care insurance claimaint is on claim for about 3 years, so the typical person comparing CLASS to something else could expect to receive a benefit of $50/day * 3 years – their premiums. However, an adult with severe disabilities who can work could expect to receive a benefit of $50/day * the rest of their lives – their premiums. Given that math, and given the fact that about 5 percent of adults under 65 who can meet CLASS’s trigger can work, it would be silly for someone who’s disabled but who can meet the trigger not to sign up. However, this population will be disproportionately expensive for the program.

    To make it work, I think that in addition to the comments suggested in the post, you’d have to limit the length of the benefits, as well as get rid of the low-income subsidy – and advocates for people with disabilities would most likely oppose that. Furthermore, CLASS was marketed as being complementary to private insurance, and the more it becomes like private insurance, the more the Republicans will oppose it. So, political opposition on both sides.

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