Tuesday, November 16, 2010

CLASS

I attended an event focused on implementation questions related to the CLASS provisions that were passed in the Affordable Care Act. Here is what I wrote about CLASS last December as it was being debated. The big idea of CLASS is to make planning for long term care become a normal part of being a young adult, and to provide a flexible set of benefits that would not be enough to finance a nursing home stay, but would instead help finance community based long term care.

But, there are many tricky implementation questions as outlined by Joshua Wiener at RTI. The panel today at the National Press Club discussed many of these issues. [I tweeted from the conference today, my tweets from around 9am-10:30am @DONALDHTAYLORJR] I think I left the event a little less optimistic about CLASS succeeding than I had been....not disparing or giving up hope, but it will be a challenge to set up a benefit that is self-financing and manages to attract a large number of persons....of course the more who sign up, the more likely it is to be self financing....but worries that it won't be self financing which would lead to premium increases down the road cause some not to sign up and so on.

You might ask what is the problem that CLASS addresses and the answer is that most people don't plan ahead for LTC, in part due to their lack of understanding of their risk of needing care and their misjuding how large the costs of care happen to be. CLASS could both finance care that is not now provided, and potentially delay institutionalization and therefore reduce the public exposure to paying for such care via Medicaid.

The biggest issue is setting up a benefit at a premium that attracts customers and to do so in a manner that is not overrun by adverse selection. From looking at the legislation, the biggest problem is that the definition of work is too lenient (you have to be working to be eligible to buy in and you must do so for 5 years before you are eligible to receive benefits). It is unclear to me how much discretion the Sec. of HHS has in implementing CLASS and defining the definition of work more narrowly (currently work is defined as having wages of $1,800/quarter, quite a low definition of work). It is not that person who are disabled but able to work some are not in need, or not worthy of support, it is just that CLASS is not a mechanism that can help them AND set up a self financing long term care plan. If you get CLASS set up and it is working there will probably be room to expand the buy in....but if you blow it up with death spiral right off the bat, not only will it not work, but we will never come back to it.

Finally, there is one policy option that can solve all these problems:have a mandate and compel people to participate. The premiums would then be quite low. But, that is not going to happen. If you have great ideas about how to implement CLASS, you should nominate yourself to be a member of the CLASS advisory board, the notice of the creation of this body is in today's federal register.

3 comments:

  1. One of the other problems if I recall is the inexpensive buy in for those under certain % of FPL. When this became apparent to me, your assessment above was on target, ie, this is a death spiral and wont self sustain. Why buy into this future fiasco.

    Needs to be tightened up and current voluntary structure is a recipe for future failure. It just does not seem actuarially sound.

    Thanks
    Brad F

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  2. The biggest question (I don't know the answer) is how much discretion the Sec of HHS has in implementation. With an expansion of what is 'work', at least some basic initial underwriting and aggressive auto-enroll procedures that are like soft mandates you could work this out. And there is huge issue of self fulfilling prophecy....if Am Academy of Actuaries says it will blow up and this drives away good risks, then it will.

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