After CLASS: A Proposed Long-Term Care Insurance System

“This piece first appeared in the Health Affairs Blog on November 17, 2011.”

The announcement by U.S. Health and Human Services Secretary Kathleen Sebelius that the Community Living Services and Supports (CLASS) Act will not be implemented drew a call for Congressional hearings to account for dollars spent on CLASS preparation since the March 2010 Affordable Care Act (ACA) made the measure law. What additional hearings might be in planning stages remain to be seen.

Opinions are as numerous as they are varied as to whether the CLASS Act was ill-conceived and ill-fated from the start, or a critical and feasible first step in addressing the longer-term care issue in America. In the meantime, media reports are that President Barack Obama has issued a veto threat for any legislative attempt to formally repeal the measure. All of this is taking place in a political environment charged with presidential politics.

Unfortunately – and some might say, “once again” – our political leadership is losing sight of the facts that matter most: We need a long-term care financing solution, and we need it quickly. We need fiscal solutions that encourage the middle class to save for the future costs of aging and its disability, and not to assume that Medicaid will cover these supports.

Going a step further, we need a long-term care financing solution that saves the federal and state government budgets by replacing Medicaid long-term care expenditures with personal savings. We need to concentrate on generating ideas about how to solve the long-term care financing problem. If we stay within a rubric that the initiative should be self sustaining and fiscally sound, then a public long-term care financing model is part of the deficit puzzle solution.

So, what are possible solutions to the long-term care financing conundrum and what have we learned from attempts to implement (and repeal) the CLASS Act? We propose a long-term care financing system here that will apply much of what we have learned so far.

Before outlining the components of the proposed plan for the long-term care insurance portion of the system, we note that there are two pieces of the overall long-term care financing system that, while difficult to accept, may be necessary for the system to properly function. First, we may want to allow individuals to buy into the Medicaid program at the age of 65. This option is for the portion of the population that determines they probably will eventually spend-down to Medicaid. At the beginning of their retirement, these individuals could select to buy into the Medicaid program, keeping some assets and income while immediately becoming a dual beneficiary. For some Boomers who waited too long to purchase long-term care insurance, buying into Medicaid at the age of 65 may be their best option.

Second, we would need another option for people who already are functionally disabled or have an illness that is expected to lead to functional disability. For individuals in this situation, insuring against the risk of long-term care insurance is no longer an issue – and so including this group in the risk pool for a long-term care insurance system at its genesis would not make sense.

The proposed long-term care insurance part of the system includes several components based on what we have learned so far about financing these costs. The components include:

Overall Infrastructure. In terms of the overall infrastructure, we could either create a national long-term care insurance exchange, or we could leverage state medical insurance exchanges that are currently in development. At the moment, Utah and Massachusetts have Affordable Insurance Exchanges and more than 20 others are in the process of developing them. Private products and a public product insuring for long-term care would be offered in the exchange(s).

While the medical exchanges are covering essential health benefits for medical care, one would purchase a long-term care insurance product to “marry” with the medical benefit in order to be covered for long-term services and supports. However, purchasing long-term care insurance would be optional. The private marketplace would develop products to supplement the basic coverage offered in the exchanges.

All employers would be required to offer at least one of the private long-term care insurance products in the exchange, as well as the public product, so that all workers would have easy access to two long-term care insurance options through their employer. However, individuals would have the choice of whether to participate, with incentives built-in to purchase earlier in one’s working years. Individuals would also be able to purchase exchange products of their own choosing outside of the workplace environment.

Participating Plan Requirements. For all long-term care insurance products that are offered, certain minimum protections are essential, including premium increase protections and caps. However, the national or state exchange model would allow some underwriting by the private long-term care insurance carriers competing in the exchange environment.

Public long-term care insurance would contain broad bands that distinguish premium rates according to rough risk categories. For example, differences in premiums by age would be allowed. There must be some differential in premium payments based on some criteria. Also, there would be some type of penalty for waiting to buy into the system during one’s working years.

Combination products that paired long-term care insurance and life insurance could be offered, as could products that paired disability insurance and long-term care insurance. Long-term care annuities would not be included.

Payment Options. Individuals would pay for the product either through deductions from their paychecks or additions to their Social Security tax.

Budget Rules. In the future, if a public long-term care insurance initiative is projected to save Medicaid money, it would help if it was “given credit” for these savings in budget processes. In other words, let’s not consider a public long-term care initiative to be deficit producing if it costs $60 billion but saves the Medicaid program $100 billion. The statutory language would amend budget rules and processes so that the public long-term care insurance option was considered budget neutral if it cost the same amount as it saved the Medicaid program.

Public Long-Term Care Insurance Caveat. This design requires that we carefully weigh any populations that are provided subsidies for participation. In CLASS, $5 premiums were offered to individuals living below the federal poverty level (FPL) and full-time students. This contributed to the program’s non-sustainable structure. The Medicaid program was intended for individuals who come to live below the FPL. The challenge is in providing fair and just incentives for the middle class to insure for their future long-term care costs instead of assuming that they will rely on spending down to the Medicaid program.

The options for future public long-term care insurance models and the lessons from the CLASS Act experience do not stop here. We have learned a great deal from the CLASS Act experience about the development of long-term care insurance and, after the dust settles, those involved will be able to provide more details. The point is that we are facing the type of big league problem that requires leadership. Let’s not capitalize on or mourn the loss of CLASS for too long. We have work to do – and we do not have the luxury of time before forging ahead.

Gloria Eldridge and Joanne Lynn work at Altarum Institute’s Center for Elder Care and Advanced Illness. The center researches and demonstrates new models to help an aging U.S. population live meaningfully and comfortably with serious chronic illnesses associated with advancing age, at a sustainable cost to our families and society.

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