LTC Bullet: DéCLASSé

Wednesday, December 9, 2009


LTC Comment: More analysis and criticism of the CLASS Act after the ***news.***


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*** MORE ON CLASS. "Like other entitlements before it, the CLASS (Community Living Assistance Service and Supports) health insurance scheme will force the next generation of Americans to bear its true cost, says David Gratzer, a Senior Fellow with the Manhattan Institute." Source: David Gratzer, "Yet another new entitlement,"

Washington Times, December 6, 2009, full text here. From: NCPA: Daily Policy Digest 12-08-2009. ***

*** MORE LTC-TV. LTCI industry leader and actuary Jim Glickman analyzes and prognosticates about the CLASS Act. Recorded on scene at the 8th LTCI Producers Summit in Kansas City last month. Check it out here. ***



LTC Comment: My web dictionary defines déclassé as "fallen or lowered in class, rank, or social position . . . of inferior status." Seems to fit the CLASS Act.

Although doubtlessly well-intentioned and ingenious, this proposed new entitlement for long-term care is fundamentally flawed actuarially and philosophically.

We've analyzed the CLASS Act here before. See "LTC Bullet: CLASS Conciousness" and "LTC Bullet: CLASSified." Or check out eight more examples in The Zone including LTC E-Alert #9-076--A CLASS Half Full, LTC E-Alert #9-104--Will CLASS Pass?, and LTC E-Alert #9-123--CLASS Dismissed. (You'll need your user name and password to access The Zone. Contact if you need a reminder or to join the Center and connect to The Zone.)

Today, we bring you two new critiques of the CLASS Act. The first is from the Concord Coalition's latest Facing Facts Quarterly newsletter published yesterday. Read Neil Howe and Richard Jackson's excellent essay about CLASS titled "The Other New Health Entitlement" here.

Following is an excerpt:


"With the budget deep in deficit, new war costs looming, and Congress struggling to find the fiscal resources to pay for the President's core health-care reform agenda, the Concord Coalition does not believe that this is the time to enact a new long-term care entitlement. But if Congress does enact one, at the least it should ensure that it is soundly designed and honestly paid for.

"As it stands, the CLASS Act embodies the worst sort of budgetary and actuarial chicanery. It pretends that premiums can be double-counted both as a near-term budget offset and as long-term savings. And it violates the most basic principles of sound insurance design by failing to provide for either underwriting or a mandate and by underfunding the oversight needed to detect fraud. The losers will be today's younger taxpayers, who will have to bear the ultimate cost. Congress' willingness to engage in this kind of legislative malpractice helps to explain why so many Americans believe that government does not have the interests of future generations in mind."


LTC Comment: Our second contribution to CLASS analysis today comes again from that bottomless well of ideas, Claude Thau. He sent his mailing list, including yours truly, his "Top 10 Concerns About the CLASS Act." Republished with permission.


You might want to contact your Reps and Senators about the CLASS Act which is in "health reform" bills in the House and Senate. It nationalizes LTCi with an under-funded "Medicare" type of program, increasing the $152 trillion of debt that we have greedily heaped onto future generations. Our unborn descendants already suffer from egregious "taxation without representation." Here are my top 10 points.

1) It has been repeatedly under-priced, from $35 to $65/month. The American Academy of Actuaries [AAA] (see attached) concluded that it would have to cost $160/month and a Centers for Medicare and Medicaid Services actuary (see link below) concluded that it would have to cost $180/month.

2) However the AAA priced it only for a 75-year horizon, because that was what it was asked to do. The cost of any program is significantly understated if you count up-front premiums and ignore back-end payments. It's like saying you are $100,000 richer when you get a $100,000 loan. The annual OASDI fund solvency reports show that when the arbitrary 75-year horizon is removed, the unfunded liability more than triples. I would expect a LTCi program to be more back-ended than Social Security (see my attached paper) [omitted here, but paid-up Center members may request a copy from]. The CMS actuary may have adjusted for this issue.

3) Federal Government-run programs generate deficits, not because they can't be run well theoretically but because of the lack of checks and balances when the government is trying to govern and to run a program at the same time. Consider AMTRAK, the Post Office, Fannie Mae, Freddie Mac, Medicare, Social Security, Medicaid.

4) Proponents of the CLASS Act tout that the money would go into a lock-box. But, in a striking example of lack of control, they claim it reduces the cost of the health care reform bill! Private industry must create an accounting liability for reserves, but the attached [omitted here, but paid-up Center members may request a copy from] CBO CLASS Act analysis CLEARLY VIOLATES this principle. The CBO table on page 2 shows NO reserves. Au contraire, it says that the premiums reduce the national deficit! Unbelievably irresponsible raiding of the "lock box" before it is even created! (By the way, if you read the CLASS Act, you'll see that the lock box is not locked.)

5) The cost estimates seem to ignore some provisions of the CLASS Act and some impacts of the CLASS Act. For example, like the "public option", it replaces private industry revenue which gets taxed with government revenue that does not get taxed, then counts the lost tax revenues as "health care savings".

6) It precludes premium increases until it is too late to establish solvency and then still limits the increases to further pander to recipients by increasing the burden on future generations.

7) Whether people have coverage under the CLASS Act or not, they are likely to think they have coverage. Whether the coverage is sufficient or not, they are likely to think it is sufficient. If an insurance broker tries to convince them they have insufficient coverage, they will distrust the broker. Furthermore, their CURRENT amount of coverage is not meaningful to them; they (rightfully) do not expect to need care NOW. They will believe (rightfully given past government practices) that the government will give away increases in benefits over time, digging larger deficits. Why buy LTCi in such an environment?

8) If the broker closes a sale that complements CLASS, the size of the case will be very small, hence little commission will result. Who can afford to sell that?

9) Some people think the industry can survive selling to healthier risks. Do you think the government is going to let the industry "cherry pick" like that? To protect the Federal program, the LTCi industry would probably be banned from asking health questions. Spousal discounts would probably also be banned as discriminatory.

10) Someone with Federal and private coverage could double dip. Duplicate coverage is a difficult and costly problem, particularly when the government puts up barriers to solving it, as it often does.

The author can be reached as follows:

Claude Thau, President, Thau, Inc.,

Ph: 913-403-LTCi (-5824); 800-999-3026, x2241; Fax: 913-384-3781

  • Thau Inc. was established to help create a sound long-term care insurance industry in the U.S.A. It works in 3 areas:
  • Consulting for LTCi companies, providers of services, employers, associations, insurance agencies, etc.
  • Wholesaling LTCi by training and servicing insurance brokers across the country.
  • Advocacy work.


LTC Comment: Our last word: some thoughtful people in the long-term care insurance industry think the CLASS Act, if passed, would increase public interest in and, possibly, augment the purchase of private long-term care insurance. I'm not one of them.

The public's asleep about LTC risk and cost because government has paid for most expensive LTC since 1965 and still does. How could adding one more government program purporting to pay for even more LTC wake people up? It won't. It'll be like adding an extra dose of anesthesia to the body politic.

There is one way that passage and implementation of the CLASS Act would increase the market for LTC insurance. By piling up billions more in unfunded liabilities for the federal government, CLASS will hasten the impending collapse of the social safety net including Medicaid, the dominant payer of LTC, as well as Medicare and Social Security.

When that happens . . . when people really do face the catastrophic costs of long-term care, it won't take long for folks with wealth to snap to attention, recognize the new vulnerability, and plan for it. The first wave of reality will hit home equity. Reverse mortgages will soar as a source of LTC financing. The next wave will make long-term care insurance into a must-have financial product.

What a shame that government ruined the safety net by trying to cover too many instead of saving public assistance for people most in need and allowing private long-term care insurance to carry most of the weight. Ironically, that's where it's all going to end up anyway.