Inside the House and Senate health care bills lurks a ticking time bomb
a new federal entitlement, under the Community Living Assistance
Services and Supports (CLASS) Act, which would allow Americans to buy
into a voluntary federal long-term care insurance program.
The main problem, as Josh Gordon, policy director for the
fiscal-watchdog group the Concord Coalition, noted is that CLASS, which
has passed "below the radar" of most Americans, is a poorly designed
While Washington would start collecting CLASS premiums in 2011, CLASS
would not pay benefits for five years. So, because it charges for 10
years but only pays out in five, CLASS appears to be a deficit-cutter in
the health care bill's 10-year budget window.
Paul Van de Water, a senior fellow for the left-leaning Center on Budget
and Policy Priorities, which supports CLASS, noted that the five-year
waiting period will keep people from enrolling for immediate benefits.
Besides, because Congress is "very sensitive" to the criticism that it
used CLASS to keep the health care bill from adding to the deficit over
10 years, Van de Water told me, both houses passed bills that balance
without the CLASS windfall.
OK, but I fear the joint conference committee's final version won't be
balanced without the CLASS money. And even if the final health package
does balance, CLASS will start running in the red 10 years after it
starts writing checks, according to Richard S. Foster, chief actuary for
Medicare and Medicaid.
Beneficiaries could use CLASS payments to help pay not only for
institutional long-term care, but also for in-home care. Now, I know
I'll get e-mails from readers who argue that it is cheaper for mom to
live with them than in a nursing home. But as the Concord Coalition
warned, because CLASS "pays for a panoply of desirable home-care
benefits, but fails to provide adequate oversight, it also invites moral
hazard." And because "just about anyone who can possibly qualify will
want to collect these benefits," the Concord Coalition warns of "induced
demand or what is sometimes called the 'out of the woodwork'
But wait there's more not to like. Congressional Budget Office
Director Doug Elmendorf estimates that, other than students and
low-income workers who qualify for a subsidized $5 monthly premium,
workers would pay an average of $146 per month under the House bill,
which covers nonworking spouses, and $123 under the Senate bill. The
bills invite employers to deduct premiums unless employees opt out.
Foster, however, believes an average premium of $240 per month would be
required to cover costs a price tag that likely would drive away all
but the chronically ill.
As Foster wrote, "In general, voluntary, unsubsidized and
non-underwritten insurance programs such as CLASS face a significant
risk of failure as the result of adverse selection by participants."
Foster sees "a very serious risk" that the CLASS Act will become
Some call it a "death spiral" higher premiums chase away healthy
consumers and remaining customers drive prices ever upward.
CLASS could be the next new unsolvable headache my generation passes on
to the next.