LTC Bullet: Less Than Meets the Eye: LTC in ACA

Tuesday, October 26, 2010


LTC Comment: If you think the design of CLASS is dubious, you won't be greatly reassured by the Administration's first steps to implement the program. More after the ***news.***

*** HEALTH REFORM TIMELINE. I'm forwarding this "timeline" link as it may be helpful when counseling employers and answering their questions about health reform implementation. But note that it says CLASS implementation is 1/1/11 and does not mention the likely actual start of 10/1/12 or later. Not sure how reliable the rest of the information is. ***

*** AALTCI. Need another reason to join the American Association for Long-Term Care Insurance? Read about the "industry awareness campaign," "why rate increases occur," "audios focused on leads and selling," "a great business card design," and more in AALTCI's newsletter here. AALTCI members get information like this directly to their email in-boxes regularly. ***

*** CLARIFICATION. Just so there's no misunderstanding, the Center for Long-Term Care Reform and AALTCI have no official relationship. We're friends and support each other in various ways because the public policy changes the Center pursues are vital to the success of LTC insurance and the success of LTC insurance is vital to the Center's mission "to ensure access to quality long-term care for all Americans." So join the Center for Long-Term Care Reform also here or contact Damon at 206-283-7036 or ***

*** THE CLASS CONTENT covered in today's LTC Bullet has been added to our Members-Only Zone website here:, exclusive for Center members. Not a member yet (you should be if you’re receiving this)? 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 and advocacy on behalf of rational long-term care public policy and responsible LTC planning. ***



LTC Comment: Groucho Marx once said: "Politics is the art of looking for trouble, finding it, diagnosing it incorrectly and then applying the wrong remedies."

You couldn't hope for a better example of that maxim than the CLASS Act. CLASS advocates looked for trouble, found it, misdiagnosed it, and applied the wrong remedies.

I'll explain and defend that statement in a paper titled "The CLASS Act and the Future of Long-Term Care" which I will present and defend on January 5, 2011 at the Society of Actuaries "Living to 100" Symposium in Orlando, Florida. Get all the details including how to register for that program here. I hope to see you there.

Now a word on acronyms before we proceed. The traditional "LTC" for "long-term care" still prevails, but more and more you'll see the letters "LTSS" standing for "long-term services and supports." Hence: Community Living Assistance Services and Supports or CLASS. The "services and supports" terminology is meant to convey the need to transition from institutional to home and community-based care. A noble goal, which private LTC insurance has already largely achieved (2/3 HCBS, 1/3 SNF), but Medicaid still struggles to attain (1/3 HCBS, 2/3 SNF).

"ACA" stands for "Affordable Care Act," the latest abbreviation for the awkward full title Patient Protection and Affordable Care Act, AKA "PPACA," AKA "health reform," AKA "ObamaCare."

What I'd like to bring to your attention today is a program presented by the Kaiser Family Foundation (KFF) on October 1, 2010 titled "More Than Meets the Eye: Long-Term Care Provisions in the New Reform Law." You can watch, listen or read the proceedings in a video, podcast or transcript here.

There is much in ACA bearing on long-term care, and it is covered in the Kaiser program, but we'll ignore for now everything but the CLASS act. All the other provisions bearing on wide expansion of home and community-based services through Medicaid are moot. States have no appetite or money to implement them.

In fact, state Medicaid programs tend to drop HCBS programs first when they need to save money. That's ironic because HCBS is supposed to save money according to conventional academic wisdom. But of course, there is no empirical evidence to back up that widely held misperception.

So what do we learn about CLASS in this KFF program?

We get our first introduction to the fellow with the job to begin implementing CLASS. Moderator Ed Howard of the Alliance for Health Reform introduces him thus:

"We're gonna start with Richard Frank, who's deputy to the HHS [U. S. Department of Health and Human Services] Assistant Secretary for Planning and Evaluation. His responsibilities include aging, and disability, and long-term care, and mental health -- easy areas. I'm sure he has them all under control.

"He is on leave from his position as professor of health economics, on the faculty of the Department of Healthcare Policy within Harvard Medical School. He served on the Citizens Working Group on Healthcare, which was created . . . a few years ago.

"And he's here today specifically to help us understand the so-called, CLASS Act, which was enacted as part of the ACA. Richard, thanks for being with us."

Mr. Frank begins by defining CLASS as "a national voluntary insurance program for purchasing community living and/or institutional services."

LTC Comment: Not a propitious beginning as CLASS is not an "insurance" program by any stretch of the imagination. It has no underwriting, no defined triggers, no definite benefits, no cash reserves, and no contract or "policy" enforceable in a court of law to guarantee the "insured's" rights. CLASS is not "insurance" and it should never be allowed the dignity of that appellation.

Nevertheless, Mr. Frank is probably right when he says a little bit later: "The CLASS Act has potential to really fundamentally alter the way Americans protect themselves against the financial consequences of needing long-term services and supports."

That might be true in the sense that CLASS could further anesthetize the public to the risk of LTC, convince even more Americans they are protected when they aren't, divert many more people away from private financing like insurance or home equity conversion and hasten the collapse of entitlement programs including Medicaid, the dominant payor for long-term care in the USA, by adding to their unfunded liabilities.

Next Mr. Frank describes provisions of the CLASS Act more or less verbatim from the statute. Let's skip that part as we've covered it here many times before.

Here's where it gets interesting:

Richard Frank: "Now let me talk to you about a few of the challenges that we're starting to deal with in the process of implementation. First of all, the authors of the CLASS Act anticipated a central role for employers in making it easy for people to enroll. And that was the sort of genesis of the opt-out provision.

"Now what's making it easy means -- and getting employers to participate means not only making it easy for enrollees, but making it easy for employers. That is that, the way premiums are going to be determined requires employers to get a lot of information about people, potentially to set premiums and to do withholding that they don't normally collect.

"And so one of the things we need to figure out in implementing this program is how do we make it easy for employers to, kind of, at low cost and low hassle, administer what is a more complicated premium and withholding structure than you might otherwise see in other parts of benefit designs.

"We also have to set up this uniform eligibility and determination process, and while we have very well developed systems in the private sector for doing assessments of activities of daily living limitations, we're far less well situated to move into the cognitive impairment areas, particularly for the non-elders, that is for people with intellectual disabilities and people with severe and persistent mental illness.

"And so, we need to set up systems where we can consistently and uniformly across the nation do this in a way that's scientifically sound. And so that is a significant issue." [Emphasis added.]

LTC Comment: I don't know about you, but that explanation does not build up my confidence that the people in charge of implementing CLASS have a very good idea of what to do and how to do it. But let's not form any judgments prematurely. To be fair, understand too that some of the incoherence in these quotes from Mr. Frank may derive from the automatic transcription of his remarks by voice-recognition software.

Here's some more from . . .

Richard Frank: "As I mentioned earlier, the CLASS Act is also grounded in the principles of consumer direction and consumer autonomy, and it sets out a variety of examples of the types of services that might be used to promote independence.

"At the same time, there's a strong admonition to do everything that we can to preserve program integrity. And so we need to sort of find a balance and a set of mechanisms that balance the demands of program integrity with the respect for the principle of self determination and independence.

"As I mentioned, there are very specific conditions under which Medicaid offsets can be collected. There is ambiguity and actually some technical messiness for want of a better word, in the way that, that language is drafted, and so the regulatory authority that we've been given requires us to clarify how the Medicaid provisions will actually work. And then there are a variety of other regulatory requirements in the bill that we will be pursing and implementing over the coming months. Thank you very much." [Emphasis added.]

LTC Comment: OK, well, that clears everything up. Not. But let's get to some Q&A. Maybe that will help.

John Green: "Thank you. I'm John Green with the National Association of Health Underwriters. Mr. Secretary, you mentioned that you anticipate a lot of adverse selection with respect to the CLASS Act in terms of folks that will likely sign up because they can't pass underwriting in the long-term care insurance market and that there are a large cohort who are going to pay $5. . . .

"I'm not sure how you sustain this program as a viable pay-as-you-go self-sufficient program with a $5 payment and the adverse selection and keep it a voluntary program."

Richard Frank: "The interesting thing is the authorities given the Secretary. There are in a sense authorities both that guide enrollment and the sort of contact to the program, but there are also authorities that require our Secretary to do what it takes to keep the program solvent.

"What we're doing right now is focusing a great deal on trying to design a program that will increase the take up rates above what have frequently appeared in estimates reported in the media. So it's really using the flexibility and the authorities given the Secretary to really try to get a program that will be situated in the market in such a way that we can really get the maximum out of participation because participation is a very important answer to your issue here." [Emphasis added].

LTC Comment: How reassuring. The Secretary of Health and Human Services has the authority to change everything about CLASS, including premiums, triggers, and benefits, in order to force the program into 75-year actuarial solvency. What a relief. And the goal is to maximize "take up" rates? Somebody should communicate a basic principle of business to these people . . . "When you're losing money on every customer, you can't make up for it with higher volume!"

John Green: "Richard, can I just ask as a follow up? Have you had enough time to gauge the reaction of the employer community to seizing the role that the law states for them giving their workers a chance to opt out by putting them on otherwise because presumably that would have a big impact on the participation rate?"

Richard Frank: "The short answer is that we don't fully understand. We haven't done a complete survey of the employer community. We've been talking to a lot of employers. We've been actually spending a lot of time worrying about how to make it easy for employers because to some extent, the conversations we've had say if you can make it easy, if we don't increase our burden, we'll entertain the idea of doing this.

"So we've been working with, for example, the payroll management industry to try to figure out ways that we can design both information systems, but also processes and procedures that will be run in part by the government to really simplify the role of the employer in this." [Emphasis added.]

LTC Comment: Government is going to run payroll management more simply than private industry. You betcha.

Paul Willging, Johns Hopkins University, former president and CEO of the American Health Care Association: "This is not a coordinated program with a previous question here, but it does have to do with the actuarial soundness of the CLASS Act. Indeed, in one of the very good handouts in the packet, (it is) the American Academy of Actuaries who suggested it is not actuarially sound. I believe that CMS' own actuaries raised some questions about the soundness of this program.

"But assuming, given your response, Dr. Frank, that the Secretary has the ability to adjust the program based on its success or failures, does that not create potentially a death spiral? So the Secretary increases premiums, you have even fewer sound people signing up for the program, etcetera, etcetera, etcetera and we eventually end up with a program that is going to require mandatory participation to get the kind of involvement that the program needs to be actuarially sound." [Emphasis added.]

Richard Frank: "In a sense, what you just said is the other side of what adverse selection is all about. In fact, if you start to disproportionately attract bad risks, your premium goes up and you lose your best investor. That is clearly a challenge here and as I mentioned a moment ago, really, one way to address the challenge is to try to broaden the base of participation as far as possible.

"And so, obviously, that means trying to find the price points in the market that will allow you to bring people in. It means trying to locate the benefit designed in ways that it appeals to people, perhaps, that haven't rushed into the existing private insurance markets.

"There's actually quite a bit of literature out there with evidence suggesting directions to go in trying to appeal to slightly different audiences. And then, people come to these decisions with a tremendous amount of misperception and misunderstanding of the risks and the costs and the consequences of needing long-term services and supports. And so, we're also working hard on trying to come up with ways of educating the public about why this might be a reasonable set of products to pursue." [Emphasis added.]

LTC Comment: Just guessing here, but I think this is one government employee who'd better not count on the "revolving door" to make his future fortune in the private sector as an insurance actuary.

Richard Frank: "Actually, I want to apologize if we haven't communicated well enough what we are trying to do. First of all, as you know, the CLASS Act, one of the things that we expect much of the money to go to is actually cushioning the financial impact on families being allowed to hire relatives and pay them to be able to insulate them from these sorts of job disruptions that come from care giving." [Emphasis added.]

LTC Comment: Seventy to 80 percent of all long-term care in the USA is provided for free by friends, families and loved ones, mostly women, wives, daughters and daughters-in-law. The estimated value of this uncompensated care exceeds the total cost of paid long-term care. It would be a wonderful thing if families could be paid for providing care, but it is not economically feasible to do so. California tried with its In-Home Supportive Services (IHSS) program and had to cut the program because of exploding costs.

Ed Howard: "And I should know the answer to this question but I don't, and I wonder if anyone does about what kind of estimates CBO made if any about that kind of impact. I mean, does this movement actually save you money, bend the cost trend in the future at some point? Joanne cited some research that seemed to indicate that, that was the case in general but how about this specific piece of legislation? Richard?"

Richard Frank: "Yes, well, as you know that the CLASS Act is responsible in the CBO estimates for about $70 billion in budget savings over 10 years, so there's that piece of it. There are also Medicaid offsets that are contained in there from those provisions that I mentioned at the beginning of my remarks.

"In terms of thinking about what I think is implicit in your question, which is: on average is home- and community-based care overall a net cost saver? I don't think that we know quite enough yet about the sort of the net-net effect, just because you're changing the number of recipients and you're moving people into just a whole range of different services. So I actually don't think we quite know the answer the final answer to that question." [Emphasis added.]

LTC Comment: Did you catch the reference to the CLASS Act's claim to save $70 billion? That's the Ponzi scheme aspect of the program. You collect $86 billion in premiums during the first ten years of the program, spend only $16 billion on administration and benefits, then claim the difference, $70 billion, as "budget savings." If that sounds criminal, it would be if it were anyone but the government doing it.

As far as home and community-based services saving money, that's not an unsettled question. All the empirical evidence suggests that HCBS delay but do not replace institutional cost and raise total public expenditures for LTC. That doesn't mean we shouldn't pursue more home care and assisted living. It just means we have to find ways to pay more, not less, for them. Private LTC insurance has done that; no government program has.

So what exactly is the government doing to get CLASS Act implementation under way?

Richard Frank: "On a CLASS Act front, we are working very hard to standup a CLASS office and searching for an administrator for the program. And again I mentioned that we've charted the advisory council and so in the coming weeks or one or two months anyway, probably the secretary will be announcing the location of the office, the name of the administrator, the members of the first advisory panel followed then probably beginning of next year by the independence advisory council, which is sort of like the board of trustees." [Emphasis added.]

LTC Comment: I bet candidates are just standing in line for the job of bringing order to this CLASS chaos. So I conclude, there really is "less than meets the eye" in ACA re LTC. Let's hope after the midterm election, we can start fresh and plot a saner and more competent course toward financing long-term care.