LTC Bullet: Heritage on CLASS

Monday, July 26, 2010


LTC Comment: The Heritage Foundation has done the CLASS Act debate a valuable service. Details after the ***news.***

*** THE CLASS CONTENT covered in this LTC Bullet has been added to our Members-Only Zone website here:, exclusive for Center members. Not a member yet? Need to renew? Need a refresher on your username and password? No problem. Just contact Damon at 206-283-7036 or Center membership is only $150 per year for individuals or $12.50 per month and gets you access to The Zone and allows you to receive our daily LTC E-Alerts and LTC Bullets by email. Corporate memberships are also available. Support the Center's research, analysis and advocacy on behalf of rational long-term care public policy and responsible LTC planning. ***

*** ILTCI CONFERENCE. The next Intercompany Long-Term Care Insurance Conference will be held March 6 to 9, 2011 at the Atlanta Marriott Marquis hotel. Registration details to follow later. For now, potential sponsors may obtain details on sponsorship levels, exhibiting, and early bird discounts by contacting Jim Glickman ( ***

*** PHYLLIS SHELTON'S 2010 Long-Term Care Insurance Worksite & Combo Products Fall Tour begins September 15, 2010 in Seattle and heads to six more cities ending in Los Angeles on November 9, 2010. Check out all the details here. ***



LTC Comment: On Thursday, July 22, the Heritage Foundation ( shed important light on the Community Living Assistance Services and Supports (CLASS) Act by publishing James C. Capretta and Brian M. Riedl's "Backgrounder" titled "The CLASS Act: Repeal Now, or Face Permanent Taxpayer Bailout Later." We'll share some highlights with you, but if you're concerned about long-term care services and financing, do not miss the chance to read this important article in its entirety.

While you're at it, compare "Heritage on CLASS" with "SCAN on CLASS." The SCAN Foundation says its "mission is to advance the development of a sustainable continuum of quality care for seniors." Yet, when SCAN Foundation president and CEO Bruce A. Chernof, M.D. published an op-ed lauding CLASS in the San Francisco Chronicle ("Reform eases long-term health care woes," July 23, 2010), he neglected to mention any of the program's fatal flaws so clearly delineated by Heritage.

There is an important lesson in this comparison. The CLASS Act is a fraud perpetrated on the American public. Kent Conrad (D, ND), Chairman of the Senate Budget Committee said as much when he called the program "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of." So every time you see CLASS presented positively with none of its negatives mentioned, recognize that political con artists are trying to dupe you and others.


Excerpts from James C. Capretta and Brian M. Riedl, "The CLASS Act: Repeal Now, or Face Permanent Taxpayer Bailout Later," Backgrounder, No. 2441, July 22, 2010, Heritage Foundation, Washington, D.C.

Abstract: . . . CLASS is essentially a Ponzi scheme that will run initial surpluses followed by massive deficits—virtually guaranteeing program bankruptcy or, more likely, massive taxpayer bailouts. The surest way to avoid this fate is to repeal the program— preferably before it enrolls participants on January 1, 2011. The Heritage Foundation’s Brian Riedl and Visiting Fellow James Capretta explain why repeal is the right action for Congress to take.

Talking Points

• CLASS, a new national long-term-care insurance program, was added to Obamacare so that CLASS's total $70 billion surplus from 2011 to 2019 would cover up Obamacare's other deficits.

• CLASS is supposed to be self-financing and not cost taxpayers a dime. However, its design virtually guarantees that the program will run large deficits after 2019, and reach bankruptcy shortly thereafter.

• Senate Budget Committee Chairman Kent Conrad (D-ND) has acknowledged CLASS's unsustainability by calling it "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of."

• The surest way to avoid a future of massive, permanent taxpayer bailouts is for Congress to repeal CLASS before it begins enrolling participants on January 1, 2011. . . .

CLASS appears to have been designed more to subsidize the first decade of Obamacare than to provide a sustainable long-term health care program. This poorly crafted program will likely have one of the four following outcomes:

• Death Spiral Followed by Bankruptcy. As stated above, the Secretary of Health and Human Services is empowered to adjust premiums as necessary to keep the program solvent for 75 years. However, for healthy individuals, CLASS will likely charge higher premiums and pay lower benefits than what is currently available on the market. As healthy individuals bypass the program, only those who expect to incur substantial long-term costs will find it profitable to participate. Maintaining solvency would then require broad-based premium increases or benefit cuts, which would subsequently drive more of the comparatively healthy participants (and potential participants) out of the program— requiring additional premium increases or benefit cuts for the dwindling number of participants. This adverse-selection death spiral would eventually bankrupt the program. . . .

• Compulsory Participation. CLASS is guaranteed-issue, meaning all workers 18 and older, regardless of health status, are eligible to enroll. Additionally, CLASS is prohibited from charging higher premiums to those with higher health risks (who will likely require more benefits), which also means that healthy individuals who require fewer benefits would not receive a discount. Lawmakers could avoid an adverse-selection death spiral by requiring that all American adults participate in the program. This would ensure that enough healthy individuals pay CLASS premiums to subsidize those who require large benefits. . . .

• Taxpayer Bailouts. With Washington unlikely to accept the two options above, the only way to shore up CLASS and pay all promised benefits would be with another taxpayer bailout. Unlike the Troubled Asset Relief Program (TARP), this would not be a one-time bailout, but would continue as long as anyone who has ever paid into the system may require benefits. Given America’s serious long-term budget challenges—trillion-dollar budget deficits and the challenge of paying Social Security and Medicare benefits to 77 million baby boomers—taxpayers cannot afford yet another expensive, permanent bailout.

• Repeal CLASS. The only way to avoid program bankruptcy or (more likely) decades of taxpayer bailouts is to repeal the program—preferably before it begins enrolling participants and collecting premiums on January 1, 2011. . . .

Congress Must Act Now Proponents of the new health law have claimed repeatedly that it will improve the nation’s long-term budget outlook. That is an illusion based on implausible assumptions, sleights of hand, and outright budget gimmicks, with CLASS topping the list. The CLASS Act is an ill-conceived concept that was included in Obamacare only because of the appearance of surplus funding. In reality, CLASS is destined to run short of funds, creating pressure for another massive taxpayer bailout. The biggest threat to the long-term prosperity of the country is the massive unfunded liabilities for the nation’s major entitlement program. The last thing Congress should be doing is adding to the burden of future taxpayers, which is why CLASS Act repeal is the most fiscally responsible—and ethical—course to follow.