Health Reform's First Casualty

The Obama administration has dealt a mighty blow to one part of the health reform law by effectively killing off the CLASS Act, which was to be a baby step in the development of a national program to pay for long-term care. The CLASS Act, short for Community Living Assistance Services and Support Act, was supposed to be a voluntary and federally backed insurance program for people to use to cover potential long-term care needs. The idea was for Americans to pay premiums into the fund during their working years. If they later became disabled and needed assistance, they would be entitled to a daily cash benefit of, say, $50 to buy services of a personal care attendant or make home improvements that would allow them to stay in their homes'the preference of most seniors. Advocates of the CLASS Act even envisioned that some of the benefit could be used for nursing home care.

The program, though, was never popular with insurance companies and politicians who listened to them, and the Act barely made it into the final bill. It ran into trouble from the beginning. The Secretary of Health and Human Services, Kathleen Sebelius, was tasked with making sure that the program would be financially viable for seventy-five years, and the HHS Secretary found that after months of study, the mathematical models indicated that was impossible. Why?  Because the program is voluntary, and people might sign up for it only when they think they will need long-term care.'  That's like buying insurance only when the house catches on fire. The program depended on a lot of healthy people signing up to spread the risk, and Sebelius said that was not likely given how expensive premiums would have to be. She predicted that premiums might be in the range of $235 to $391 a month and could go as high as $3000 a month under some scenarios.'  For people who are having a hard enough time paying for increasing costs of medical care, with both higher premiums and more out-of-pocket costs, the government believed that people might not be keen about yet another expensive premium.

With or without CLASS, the U.S. has no viable or sustainable system for providing long-term care. Nursing home care is expensive, and can cost more than $100,000 a year in some states like New York. Right now families pay out of their own pockets, and when they run out of money or don't have it to begin with, they turn to Medicaid. Families needing Medicaid must use most of their income and most of their assets to pay for care before Medicaid steps in. In other words, middle class people must make themselves poor to qualify for a program that was basically established to provide health care for those with very low incomes. Medicaid is less-than-ideal, and as states continue to have shrinking budgets, qualifying for Medicaid is becoming even harder.

Long-term care insurance also has a lot of drawbacks. It, too, is expensive. It's not uncommon for a family to spend $2000, $3000, or more for a policy. People who currently have insurance might be tempted to drop them as companies raise their premiums. Many insurers underpriced their products as a way to grab business, leaving policyholders to suffer the consequences later on.

Furthermore, you can only buy a policy if you pass the insurance company's medical requirements. Companies don't want to insure people, who, for example, have Parkinson's disease, and may need nursing home care. What about the health reform law, you might be thinking, that requires health insurers to sell policies to all comers even those with serious illness? Sellers of long-term-care insurance are exempt from that requirement. That means even if you wanted to buy the insurance and had money to pay for it, you may not qualify. The market for this insurance is likely to remain small.'

With the CLASS Act's demise, the country is back at square one.