In a Washington Times column yesterday, two Heritage Foundation researchers argued that the Community Living Assistance Services and Supports (CLASS) Act is a trillion dollar government bailout waiting to happen. The CLASS Act is a national voluntary long-term care insurance program that was included in the new health care law. And to listen to the authors, you’d think CLASS will make Fannie Mae look like a Salvation Army Christmas kettle.
They are dead wrong. While the law is flawed, it need not be the boondoggle that James Capretta and Brian Riedl fear. In fact, with some adjustments, CLASS could be a step toward responsible reform in the way we pay for long-term care in the United States. It could provide 10 million frail elderly and younger people with disabilities with flexible personal care and, at the same time, save states and the federal government billions of dollars. That’s right. Despite Heritage’s fears, CLASS has the potential to cost taxpayers less money than today’s dysfunctional system of long-term care services.
Here’s how CLASS would operate: Starting in about 2013, anyone working at least a part-time job will be allowed to purchase government long-term care insurance. After paying premiums for at least five years, participants would receive a daily cash benefit for as long as they need personal care. This would give consumers broad choice in how they’d receive assistance with activities such as bathing, eating, or moving from a bed to a chair. They could use the funds to pay for home care, adult day programs, assisted living, or nursing home care. Both benefits and premiums will be set by the Secretary of Health and Human Services over the next couple of years, but the minimum average daily benefit would be $50. The Congressional Budget Office and Avalere Health, a national consulting firm, figure premiums will average about $120-a-month.
Capretta and Riedl are correct that CLASS has problems. Because it is voluntary and open to all regardless of health status, many buyers will be more likely than average to receive benefits. That will drive up premiums, making healthy people even less interested in buying.
I share the authors’ concern about this flaw. But it can be fixed, either with modest changes or in one big way. And CLASS can be a lot better than what we have now.
Today, taxpayer-funded Medicaid, (that’s Medicaid, NOT Medicare) pays for half of all long-term care in the U.S., at a cost to taxpayers of more than $100 billion-a-year. Medicaid is already busting state budgets and, by mid-century, will absorb more than one of every six federal tax dollars. Worse, Medicaid often provides poor and inappropriate care to beneficiaries, often once-middle-class seniors who have exhausted their financial assets.
CLASS has the potential to turn long-term care from a welfare program to self-funded insurance–a change conservatives should support. The program can be improved and premiums reduced by stiffening the work requirement for buyers and making some other technical changes. Or, Congress could make CLASS participation mandatory, just as it has done with health insurance. Heritage argues this would force people to buy “expensive” insurance. But Avalere estimates premiums for a mandatory program would average only about $40-a-month.
And one analysis suggests that mandatory CLASS-like insurance could cut Medicaid long-term care costs in half. Because people will be insured, they will be less likely to turn to Medicaid. Even after providing a premium subsidy for those with low incomes, government would be way ahead.
Fiscal conservatives such as Capretta and Riedl ought to be looking for ways to improve CLASS, rather than demanding its repeal. The millions of Americans who will need personal assistance, their families, and taxpayers would all be better off for it.
This post orginally appeared in TaxVox, the fiscal policy blog of the Tax Policy Center