LTC Bullet: CLASS vs. LTCI--What's Best for LTC Providers?

Tuesday, July 20, 2010


LTC Comment: LTC provider associations have been among the biggest promoters of the CLASS program, but what's best for their members? Answers after the ***news.***

*** THE ZONE: Today's LTC Bullet has been added to our comprehensive "CLASS Act Update" in the Center's password-protected, members-only website, AKA The Zone. To gain access to The Zone and receive our daily LTC E-Alerts and LTC Bullets by email, contact Damon at 206-283-7036 or Center membership is $150 per year for individuals or $12.50 per month. Corporate memberships are also available. Support the Center's research and advocacy on behalf of rational long-term care public policy and responsible LTC planning. ***

*** SCARY STATE OF RETIREMENT SAVINGS. By Michelle Singletary, Washington Post. Thursday, July 15, 2010; A16. The Employee Benefit Research Institute reports that about 43.7 percent of baby boomers may not have saved enough in retirement funds to cover even basic necessities 10 to 20 years into retirement. Things look slightly worse for Generation X as the EBRI calculates 44.5 percent may not have saved enough. To find an estimate of how much you need to save for your own retirement, go to and click "Ballpark Estimate" retirement calculator. Source: AHCA / NCAL Gazette Thursday, July 15, 2010. ***

*** CLASS PROPAGANDA: What would you call the burgeoning advocacy for CLASS that only mentions its alleged benefits and none of its self-evident flaws? For example, this piece from Senator Leahy (D, VT) that claims "The CLASS Act will save taxpayer dollars by reducing Medicaid costs." No chance that will happen unless CLASS is radically redesigned. Compare . . .

*** CLASS ANALYSIS: CLASS Act - Health Reform's Most Daunting Challenge:

"Projections are being figured and CLASS seems destined for adverse selection, a term where an unattainable number of participants will be needed to balance out the high risk unhealthy who will be most likely to find the plan appealing.

"Another problem that should keep Secretary Sebelius busy is the 'opt out' method of enrollment. Businesses are not required to offer CLASS to their employees, but if they do, the employees have the option of 'opting out.' Thought to be a way to encourage greater participation, especially among young workers, it has a few hurdles in the way.

"Just think. If Social Security suddenly became an 'opt out' plan, there would be an exodus of biblical proportions. The younger set might believe SS is a fabulous program, but with the new house and the baby on the way, if 'out' were an option, SS would take a back seat beside savings accounts. And SS leads one to think about retiring, having a little extra income for some fishing and travel. Signing up for CLASS is like investing in Depends futures. [Emphasis added.]

"And then there is that nasty little feature of CLASS that requires paying into the plan for five years before you can qualify for coverage. Obviously, this was a feature needed for the actuaries to figure out how to fund CLASS. Let's just say that selling that idea will be a marketing nightmare." ***

*** BAD MEDICINE: A Guide to the Real Costs and Consequences of the New Health Care Law, a special report from the Cato Institute by Michael D. Tanner. For better or worse, President Obama's health care reform bill is now law. At more than 2,500 pages and 500,000 words long, its length and complexity have led to massive confusion about its likely impact. This incisive report provides an authoritative and deeply revealing explanation of the bill's provisions. Its diagnosis is that the bill is bad medicine. It is likely to make Americans less healthy, less able to direct their own health care decisions, and places huge burdens on our economy and national debt. Buy a copy for $10 or read for free online. Author Michael Tanner is a senior fellow with the Cato Institute and co-author of Healthy Competition: What's Holding Back Health Care and How to Free It. ***



LTC Comment: Long Term Living magazine is a trade journal for "continuing care professionals." Visit their website at to subscribe.

LTL was a gold sponsor of our 2008 National Long-Term Care Consciousness Tour. We thank editor Maureen Hrehocik for permission to "reprint" the following article. Read it online here.

CLASS Act vs. LTC insurance: What's best for LTC providers?

Two divergent paths to financing LTC are offered to providers, public

by Stephen A. Moses

Long-term care (LTC) providers desperately need a better source of reimbursement. Government dominates long-term care financing, but pays too little to ensure quality care and it mostly funds services consumers would rather avoid. Medicaid has an "institutional bias" that shorts assisted living and home care while paying nursing homes less than the cost of providing the care.1

Although Medicare reimbursements are more generous, they are narrowly restricted to skilled care whether that care is provided at home or in a nursing facility. Meanwhile, Medicare is severely vulnerable to future cuts.

If LTC providers cannot rely on government to pay for their services, which option is more likely to offer a solution: the new Community Living Assistance Services and Supports Act (CLASS Act) or private long-term care insurance?

The CLASS Act is part of the health reform law signed by President Obama on March 23, 2010. CLASS is a federally mandated program in which employed people who do not opt out may prepay for cash LTC benefits without underwriting and with their "premiums," benefits, and benefit triggers determined solely by the Secretary of Health and Human Services based on the program's future actuarial solvency.

Reports by the American Academy of Actuaries; Milliman, Inc., an actuarial firm; and the chief actuary of the Centers for Medicare & Medicaid Services (CMS) have all concluded that CLASS would have to charge exorbitant premiums, offer minimal benefits, or otherwise dissolve into actuarial insolvency.

For example, CMS Chief Actuary Richard Foster warned on April 22, 2010:

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. Individuals with health problems or who anticipate a greater risk of functional limitation would be more likely to participate than those in better-than-average health. Setting the premium at a rate sufficient to cover the costs for such a group further discourages persons in better health from participating, which may lead to further premium increases. This effect has been termed the "classic assessment spiral" or "insurance death spiral."2

Foster expects that only 2% of eligible employees will take up CLASS. On the other hand, LTC insurance has been tested in the private marketplace for more than 30 years. It pays market rates for the kinds of services consumers prefer (home care, assisted living, and the best nursing home care when needed). Private LTC insurance has no risk of insolvency because of stringent state insurance regulations and "guaranty funds."

The table on pg. 35 shows the fundamental differences between private LTC insurance and the CLASS Act.

A comparison of LTC insurance and the CLASS Act
LTC Insurance The CLASS Act
Collects and invests hard-dollar reserves Relies on low-interest government IOUs
Underwritten to price risk and protect insured No underwriting, so adverse selection
Premiums based on past experience Premiums subject to future claims
Regulated by state insurance commissions HHS Secretary decides everything
Contract enforceable in a court of law "Entitlement" at whim of Congress/President
Voluntary Compulsory (opt-out allowed)
Average 90-day waiting period Five-year waiting period
Available to retirees Available only to active employees


Well then, if private LTC insurance is so great, why have less than 10% of American consumers purchased it?

Simple. Government has paid for the vast majority of all expensive long-term care since 1965. Easy access to Medicaid-financed long-term care after the insurable event occurs has anesthetized the American public to LTC risk and cost. Most people don't know who pays for it and they don't care. They've had that luxury because government has always picked up most of the cost for LTC, while protecting beneficiaries' biggest assets. Medicaid, for example, exempts up to $750,000 of home equity.

Unfortunately, the CLASS Act will only add to the public's sense of complacency and entitlement regarding long-term care. The act holds out a false hope for providers that reimbursement help is on the way. I predict CLASS will never pay a claim either because it is repealed when political sanity returns or because the federal government cannot afford to repay the Treasury bonds in the program's empty "trust fund."

What should we do instead? Give Medicaid back to the needy. Target its scarce public benefits to those who need them most. Use the savings to incentivize responsible LTC financing through private payments from asset spend-down, reverse mortgages, and private long-term care insurance.

This solution is not complicated or difficult. It will come either from political will or as a result of the collapse of the status quo. The former is unlikely. The latter is inevitable. Private insurance will outCLASS government in the end.

Stephen Moses is president of the Center for Long-Term Care Reform.

For more information, call (206) 283-7036, e-mail, or visit To send your comments to the editor, e-mail


1. A Report on Shortfalls in Medicaid Funding for Nursing Home Care. American Health Care Association, cited April 23, 2010.

2. Estimated Financial Effects of the Patient Protection and Affordable Care Act. Centers for Medicare & Medicaid Services memo.

Long-Term Living 2010 July;59(7):32-35