LTC Bullet:  CLASS is Undead
(LTC Embed Report #12)

Friday, October 21, 2011

Washington, DC--

LTC Comment:  The Obama Administration shelved CLASS, but refuses to repeal it.  Government programs do seem to live forever, but this one's officially a zombie.



LTC Comment:  If you're involved in long-term care financing and you can still fog a glass, you've probably had it up to here (pointing at top of head) with CLASS news.  We haven't bothered to cover it, because everyone and his cousin blogged their two cents worth last week.  Which is about what CLASS was worth all along.

In a nutshell, last Friday, the Administration announced that it couldn't find a way to make CLASS work actuarially or financially.  What a surprise!  Every serious analyst who looked at the program from day one said the same thing.  But now it's official.  As passed, CLASS won't work.  It isn't fixable without new legislation which is about as likely to happen as pigs flying (see cartoon illustration here).

So why won't the Ds agree to repeal CLASS as the Rs demand?  To drop CLASS explicitly would invite recalculation of alleged savings attributed by it to the Affordable Care Act, aka health reform, aka "ObamaCare."  So called "savings" of $72 billion (the difference between the $86 billion in premiums CLASS was supposed to collect and the $14 billion in claims it was expected to pay in the first ten years) would go poof.

So now, for the time being, probably until the next national election, we have a program on the books that everyone knows is unsalvageable, but which lives on to camouflage its real cost. 

The only other news about CLASS worth mentioning is that op-ed after op-ed lamented the program's passing, reminded us the problem CLASS was supposed to solve is still with us, and asked . . . often snarkily . . . "If not CLASS, what?"

For an answer to that question, you need go no further than to any of the articles, speeches and reports on the Center for Long-Term Care Reform's website here:

For our specific views on "The CLASS Act and the Future of Long-Term Care Financing," check out Steve Moses's paper of that title prepared for the Society of Actuaries January 2011 "Living to 100 Symposium" and recently published in SOA's "2011 Living to 100 Monograph."  Read the abstract here and the full paper here.

Although Steve was unable to attend the January 2011 conference because of a death in the family, he did deliver his remarks at the event by means of digitally recorded video.  You can view and listen to that speech here.

In the speech, Steve predicted the CLASS story would play out as follows and so far events are unfolding as expected:


Speech Excerpt:

My best guess of what to expect for long-term care services and financing is that . . . 

CLASS will flounder . . .

State Medicaid programs will cut back radically to survive as federal-match bonuses from the "stimulus" disappear July 1, 2011, as 16 million new recipients are added by "health reform" in 2014, and as support from Social Security and Medicare declines as I explained in my paper.

Boomers, only one-third of whom have saved enough for their retirement income security, have set aside almost nothing to meet future acute and long-term care costs.  They will quickly spend through their savings and home equity if they need long-term care after they can no longer rely on Medicaid.

Reverse mortgages will become the dominant funding source for middle class and affluent home owners who require long-term care once Medicaid's home equity exemption has been eliminated or radically reduced as it will have to be.

As soon as Medicaid no longer operates as free inheritance insurance for heirs, more and more people will purchase private long-term care insurance to avoid the new, and this time very real risk of asset spend down.

Now that I've depressed you all sufficiently, let me close on an upbeat note.  We will get through this. 

When it is no longer available to middle class and affluent people after the insurable event occurs, Medicaid will be able to do a better job for fewer dependents at less taxpayer expense. 

In time, most people will see the real risk and cost of long-term care.  They will prepare to be able to pay privately for long-term care if and when the need arises. 

Private revenue will supply much needed financial oxygen to the service delivery industry.  People spending their own money or their private insurance benefits will not go to nursing homes until they need them medically.  So institutional bias will disappear.

When most patients pay market-based rates, long-term care providers will prosper, pay better salaries, and grow.  So problems of access, quality and caregiver supply will disappear.  Desperately needed private debt and equity capital will pour into the long-term care services industry when it is profitable again.

When people know they must pay for their own long-term care, the reverse mortgage and long-term care insurance industries will prosper and grow.  So there will be more jobs created and increased tax revenue.

Bottom line, if we stop doing what we've always done in long-term care services and financing, we'll get a different result.  Because CLASS does nothing to replace Medicaid as the dominant LTC payer, it will lead to more of the same. 

According to Albert Einstein, doing the same thing over and over again and expecting a different result is . . . well, let's be tactful and just say . . . not very useful.


Now it's time to bury CLASS and turn to more realistic market-based solutions.