Evaluating the New CLASS Program
One of the many little-known facets of the new health care law is the CLASS program. This is intended to be a voluntary long-term care assistance program that will pay at least a minimum amount for participants to purchase community living assistance services and supports (CLASS). Participants will receive cash so they can hire home care workers or other assistance that allows them to remain in their current homes, whether they live in a private residence, assisted living facility, or elsewhere. The benefits also can be used to purchase institutional care, such as residence in a nursing home.
Beginning Jan. 1, 2011, all working adults will be automatically enrolled in the program through their employers, unless they choose to opt out. The program will be funded through payroll deductions. After participating in the program for a minimum of five years, participants with functional limitations will be provided cash benefits of not less than $50 per day to purchase the services of their choice.
Those of you who are employed soon will have a choice to make. There are a lot of unknowns at this point, but let’s take a look at the details we have and the projections made by the actuary for Medicare and Medicaid after the law was enacted.
The CLASS program is supposed to be voluntary and self-supporting. The actuary estimates the voluntary nature makes it unlikely the program will be self-supporting. Healthy and younger people probably won’t choose to participate, and those who already have private long-term care insurance also won’t participate. There’s a risk that participants primarily will be those who expect to need care soon after their five year waiting period ends.
The actuary estimates the monthly premium will have to average around $240 monthly to support the program. (Young and low-income participants are guaranteed a premium of no more than $5 monthly.) He estimates about 2% of those eligible will participate, compared to 4% for private LTCI. The actuary projects that once the initial five-year waiting period is over the program will pay out more in benefits than it received in premiums by 2025.
The initial premium when a person enrolls will vary by the person’s age at enrollment and year of enrollment. Once a person begins to participate, the premium is fixed for their participation period unless trust fund deficits require a premium increase. The actuary obviously forecasts that premium increases will be necessary but suggests the $240 monthly premium to delay premium increases.
The government needs to answer some questions before you can make a decision.
? What will your initial premium be?
? What will the benefit be? The law says a minimum of $50 per day. Will that change, and if so, how will it change? Will it be indexed for inflation?
? Once a person chooses to participate, can he or she withdraw? If a person withdraws, is he or she eligible for future benefits or are they all lost? Can a person re-enroll? What happens if a person becomes unemployed for non-health reasons or a self-employed person no longer earns enough to pay the premiums?
? How will premium increases be determined? Is there a limit to increases or will premiums rise automatically to whatever level is necessary to pay estimated benefits?
? What conditions must be met for a participant to qualify for benefits?
Also unanswered is how well run the program will be. When signing up for a new program you’ll have no idea how long it will take to process claims, what the claims and appeals process will be, and other details.
Even when the questions are answered, there remains the difficulty of the program’s basic structure. As the actuary wrote, “In general, voluntary, unsubsidized, and non-underwritten insurance programs such as CLASS face a significant risk of failure as a result of adverse selection by participants…[T]here is a very serious risk that the problem of adverse selection will make the CLASS program unsustainable.”
Of course, you’ll want to compare the program with private LTCI policies. We’ll keep you up to date as more details emerge about the program. Remember, you participate come January 2011 unless you opt out.
RW October 2010
