The Death of CLASS

November 21, 2011

Last spring when my colleagues and I were teaching a class on health insurance in America at the U-M Ford School of Public Policy, we asked our students to write their final papers on what they would change about the Affordable Care Act. Three of our earnest and committed students took on the task of trying to make the Community Living Assistance Services and Supports program (CLASS Act) workable. All three came up with approaches for increasing enrollment in CLASS and making it more financially sustainable over the long term.

As my colleagues and I talked about how to grade these papers, we considered to what degree the students’ solutions were workable. (One of my fellow instructors felt strongly there was simply no way to fix CLASS.) In the end, all the students who took on the challenge of fixing the CLASS Act earned grades in the “A” range because they demonstrated strong understanding of the Act and its pitfalls, proposed thoughtful solutions, and wrote extremely well.

But even so, we were not convinced that any of their solutions could fix the problems inherent in CLASS. And, as events have unfolded, they are at least in good company, since the Secretary of HHS was unable to find a solution for CLASS as well.

The CLASS Act was intended to avert a significant societal problem: increased demand for long term care due to the aging of the population. The cost of long term care causes many seniors to lose their assets and puts an increasing burden on many state Medicaid programs, since Medicaid is generally the only payer to provide coverage for long term care beyond skilled nursing.

The CLASS Act was included as Title 8 in the Patient Protection and Affordable Care Act passed in 2010, championed by Senator Ted Kennedy, who had long felt leaving long term care out of Medicare had been a major mistake. He knew the reality of the aging of the population in the U.S. and the growing need for long term care services. But, from the moment the CLASS Act was passed, it got particular focus from critics of the ACA who argued the program could not become sustainable and would be a cost burden on the federal government in the end.

Ironically, CLASS was included in the savings estimate by the CBO and supported the analysis that the ACA would reduce the deficit. How so? Because premiums would be collected to support long term care coverage long before expenses would be incurred. Congressional intent was for CLASS to be self-sustaining for at least 75 years.

But the Act was designed to be voluntary. That is, the idea was to require employers to offer long term care coverage—and employees to pay for it, in full—but also allow employees to opt out of the coverage if they did not want it. It was this voluntary aspect that made it so difficult to make CLASS financially workable. After 19 months of discussion and analysis, Kathleen Sibelius announced on October 14, 2011 that the Department had not figured out a way to make CLASS sustainable and they were therefore effectively “putting it on the shelf.”

This conclusion was reached based on an understanding of the way private long term care coverage performs over time. Even advocates for CLASS acknowledge that private long term care coverage offered by employers has had a low participation rate—about 2 percent—too low to make the coverage financially viable. The low rate means that only those who are pretty certain they are going to need the coverage purchase that coverage, leading to adverse risk. And while financial strategies could be employed to mitigate this risk, changes to the law would be required – changes not likely to pass in this political climate.

What does the untimely death of CLASS tell us? In some ways, it says more about us and the limits of market-based solutions than it does about federal politics or technical issues with the law. The death of CLASS is really about the unwillingness of Americans to plan for the future. Perhaps it is our boundless optimism that we will never be old or infirm—that technology will find the answer to longevity before we have to face our mortality. But the fundamental problem with CLASS is our low rate of purchase of long term care coverage when it is offered. In the end, a voluntary approach to long term coverage just won’t work. Insurance is all about spreading the risk and sharing the cost. Just like in health care more broadly, halfway measures don’t work. It is time to commit to long term care for all, if that is what we want.