LTC Bullet: CLASS is Undead
(LTC Embed Report #12)
Friday, October 21, 2011
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 BULLET: CLASS IS UNDEAD
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
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
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
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
In the speech, Steve predicted the
CLASS story would play out as follows and so far events are unfolding as
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
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
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.