CLASS Act in the crosshairs

The federal budget deficit commission is looking at the CLASS Act as a possible source of deficit relief. National Underwriter has the story:

The CLASS Act is supposed to create a voluntary worksite LTC benefits program. Insurance groups and actuaries at the Centers for Medicare & Medicaid Services have criticized the program and argued that it will be actuarially unsound.

Budget analysts say the CLASS Act would reduce the cost of implementing the Affordable Care Act up until 2014 but then would add $76 billion to the deficit from 2015 to 2020.

The CLASS Act program addresses “an important public policy concern, but is viewed by many experts as financially unsound,” Bowles and Simpson say in the Moment of Truth draft.

The program’s earliest beneficiaries will pay modest premiums for only a few years and receive benefits many times larger, and “sustaining the system over time will require increasing premiums and reducing benefits to the point that the program is neither appealing to potential customers nor able to accomplish its stated function,” Bowles and Simpson say.

The CLASS Act program should be “reformed in a way that makes it credibly sustainable over the long term,” and “to the extent this is not possible, we advise it be repealed,” Bowles and Simpson say.

Anyone looking for ideas of how to make the CLASS Act more affordable should consider this series of articles, especially the one starting on page 15. Some of the suggested options for reducing the cost of the program include:

Increase activities of daily living requirement: The Act allows for a two- or three-ADL benefit trigger requirement. The secretary may wish to consider the three-ADL option to help control utilization and lower premiums.

Create an incentive to preserve benefits: Currently, CLASS Act benefits grow in step with inflation, as determined by the Consumer Price Index (CPI). Individuals could be encouraged to preserve their benefits by offering them a faster benefit growth rate if they do not access their benefits until a certain age.

Change the cash benefit: Today, the cash benefit can be collected even if a spouse or child is performing LTC services. This is rarely the case in the private market because of the perverse incentives it creates. The provision could be structured more stringently so that the cash benefit can only be used for specific services such as a Medicare-approved home care agency. This would help reduce utilization.

Add an option for other than a zero-day elimination period: Currently, CLASS Act participants can begin drawing benefits immediately upon meeting the criteria for disability. An elimination period would require them to meet those criteria for a specified period of time, limiting the program to those who are in clearer need of true LTC.

Add an option for other than a lifetime benefit period: While a lifetime plan would be offered, other benefit period options that are part of the same CLASS offering may help to keep premium levels intact and potentially open up a supplemental plan.

If an actuarially sound program is still not possible given those changes, there may be a justification for changing other elements. For example:

Increasing the actively-at-work requirement: Currently, this is relatively liberal—requiring only that individuals earn approximately$1,200 per year to join the program. Raising the requirement would reduce exposure to the highest-risk individuals. This is an imperfect solution; those individuals would have to be covered by a subsidized high-risk pool or rely on Medicare/Medicaid to pay for LTC, a situation that the CLASS Act is intended to address in the first place.

Imposing rising premiums: The CLASS Act initially sets a premium that is intended to be level over the life of the participant. This premium inherently includes significant pre-funding and therefore contains a high initial price tag. One option that could help reduce that initial price is to include an increasing premium option. The premium could increase with the CPI consistent with the benefit increases.

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