FOX News – By William La Jeunesse, March 26, 2010
While Congress spent the last year debating how to provide health insurance for the uninsured, a little-known provision slipped into the heath care law that could cost some Americans upwards of $2,000 a year.
While Congress spent the last year debating how to provide health insurance for the uninsured, a little-known provision slipped into the heath care law that could cost some Americans upwards of $2,000 a year.
The Class Act, otherwise known as the Community Living Assistance Services and Support Act, is the federal government’s first long-term care insurance program.
Under-reported and the under the radar of most lawmakers, the program will allow workers to have an average of roughly $150 or $240 a month, based on age and salary, automatically deducted from their paycheck to save for long-term care.
The Congressional Budget Office expects the government will collect $109 billion in premiums by 2019.
Supporters say the program will relieve pressure on Medicaid and should help keep us out of nursing homes by enabling Americans to save for something most will eventually need — assistance in eating, bathing or dressing in their old age.
Opponents say the provision is little more than a short-term revenue fix that will eventually add to the federal deficit.
“This is a scary proposition where the government passed a huge new entitlement program with gimmicks and tricks and the American people don’t know they will be automatically enrolled in it by their employer if they don’t watch out,” said Rep. Devin Nunes (R-CA).
Nunes says Republicans were blindsided by the provision because they were unable to see the final bill until the very end. But Democratic supporters say the provision, which was championed by the late Sen. Ted Kennedy, should not be controversial.
“It promotes independence and choice for people who need long-term care, and over time it will help millions stay where they want to, which is at home,” says Jim Firman, director of the National Council on Aging.
Scheduled to go into effect in January, actual deductions could take place in 2012.
Here’s how the program will work:
— The federal government will approach employers next year about alerting workers to the proposed deduction.
— The deduction will work on a sliding scale based on age. Younger workers will be charged less, older workers more. The Congressional Budget Office pegged the average monthly deduction at $146. The Centers for Medicare and Medicaid Services put it higher, at $240.
— After a five-year vesting period, enrollees who need help bathing, eating or dressing will be eligible to take out benefits, estimated to be around $75 a day for in-home care.
“Seventy-five dollars a day in flex cash will be enough for most people who are at home to stay at home, which is where they want to be,” Firman said. “We are convinced a cash benefit is the best way for consumer to get what they want.”
While the plan’s opponents don’t question the need for long-term care, they say the federal government should not be managing it, and they believe the program will eventually add to the deficit.
“This creates a whole new bureaucracy that is going to break this country,” Nunes said. “In the early years there will be money in it, but at the end of the day there won’t be enough money to cover the problems because there will be too many people in the program.”
The statute says the program is designed to be self-sustaining, with an advisory board to assure the fund remains solvent. But opponents say the fine print already tells another story. Unless modifications are made, according to a CBO analysis of the bill, “the program will add to future federal budget deficits in a large and growing fashion.”
Supporters and detractors admit much needs to be worked out, and eventually premiums will be based on how many Americans actually sign up for the insurance.
Caution: AARP Chart
AARP Forget to mention the below Annuity Tax
CBO’s Analysis of a Proposed Federal Insurance Program for Long-Term Care
Yesterday CBO released a letter in response to a request for additional information regarding our analysis of provisions of the Affordable Health Choices Act that would establish a federal insurance program for long-term care. Those provisions are called the Community Living Assistance Services and Supports Act (the CLASS Act) and are currently under consideration by the Senate Committee on Health, Education, Labor, and Pensions.
Enrollment in the program would be open to noninstitutionalized individuals who are either active workers or the nonworking spouse of an active worker. Premiums would vary according to the person’s age at enrollment. The average premium would be limited to $65 per month in 2011 and indexed for inflation in subsequent years.
The benefit would be at least $50 per day (indexed for inflation). To qualify for benefits, an enrollee would need to have paid premiums for at least five years and been actively working for at least three of those years; the enrollee also would have to be unable to perform at least two or three activities of daily living.
The legislation would provide considerable authority to the Department of Health and Human Services (HHS) Secretary to adjust premiums and benefits to maintain the solvency of the program. The Secretary would be allowed to reduce all benefits to the daily minimum of $50 and, if that action was inadequate to avoid insolvency, to increase enrollees’ premiums.
CBO estimates that the proposal’s net effect on the federal budget would be to reduce the budget deficit by about $58 billion during the 2010–2019 period, including some effects on federal revenues and Medicaid spending. In CBO’s analysis, the real (inflation-adjusted) average monthly premium was assumed to be $65, and the real daily benefit was assumed to average about $75. The estimated reduction in the federal budget deficit over the next 10 years is chiefly the result of the five-year vesting requirement; the payout of benefits would not begin until 2016, five years after the initial enrollment in 2011.
Beyond the 10-year budget window, the effects of the program could be quite different, and CBO expects that the HHS Secretary would need to reduce benefit payments and increase premiums to maintain the program’s solvency. Assuming that the premiums and daily benefit amounts were $65 and $75, respectively, CBO estimates that benefit payments would exceed premium income within the first decade after 2019, leading to depletion of previously accumulated premium reserves (and accumulated interest on those reserves).
Although outcomes in the distant future are very uncertain, CBO expects that actions by the Secretary to reduce all benefits to the real daily minimum of $50 and raise the real average monthly premium for new enrollees to roughly $85 sometime during the first decade after 2019 would be adequate to ensure that the program could pay benefits through 2050.
Overall, CBO estimates, if the Secretary did not modify the program to ensure its actuarial soundness, the program would add to future federal budget deficits in a large and growing fashion beginning a few years beyond the 10-year budget window. If the Secretary did act to ensure the program’s solvency, the program and its effects on Medicaid spending and revenues might—or might not—add to future budget deficits, depending on the specific actions that were taken.
ACLI Urges Congressional Leaders to Withdraw the CLASS Act from Health Care Reform Legislation.
Frank Keating, president and CEO of the American Council of Life Insurers (ACLI), issued the following statement on the analysis by the Health and Human Services Centers for Medicare and Medicaid Services of the Community Living Assistance Services and Supports (CLASS) Act in health care reform legislation:
Washington, D.C. (December 11, 2009) — “The December 10 report on the Senate’s health care reform legislation by actuaries at the Centers for Medicare and Medicaid Services (CMS) presents further evidence that the proposed long-term care program known as the CLASS Act is a unsustainable program that will add to our nation’s deficit and do little to help most Americans address their long-term care needs.
“Despite assurances of actuarial soundness in the CLASS Act, the CMS report concludes that ‘in 2025 and later, the projected benefits exceed premium revenues, resulting in a net Federal cost in the longer term.’
“Moreover, the CMS report estimates ‘an initial average premium level of $240 per month’ and cites this high cost and ‘the availability of lower-priced private long-term care insurance for many’ among other factors that will result in a participation of only ‘2 percent of potential participants.’
“This latest report from CMS and additional analyses by the Congressional Budget Office, the American Academy of Actuaries, and the Concord Coalition present clear arguments for why the CLASS Act needs to be withdrawn from any final health care bill.
“Certainly the high and rising cost of long-term care threatens the financial and retirement security of all Americans. Helping Americans address this challenge is a necessary goal that requires sound public policy solutions but not a new government program that is doomed to failure.”
Read the CMS report online. Analysis of the CLASS Act starts on page 13.
ACLI Encouages Congressional Leaders to Withdraw the CLASS Act from Health Care Reform Legislation
Frank Keating, president and CEO of the American Council of Life Insurers (ACLI), issued the following statement on the Congressional Budget Office’s analysis of the Community Living Assistance Services and Supports (CLASS) Act in health care reform legislation:
Washington, D.C. (October 30, 2009) — “The Congressional Budget Office’s (CBO) analysis of the House of Representative’s health care proposal includes a cost estimate of the Community Living Assistance Services and Supports (CLASS) Act. The CBO estimates that the program will generate a savings in the early years but by 2029, the CLASS Act will pay out more than it collects in premiums.
“The savings in the CBO analysis result from the fact that the program would not begin paying benefits until premiums have been collected for five years. It is clear that once the CLASS program begins paying benefits, the program would increase the deficit in the decades following the CBO’s 10- year budget window. CBO notes that ‘the bill would generate net receipts for the government in the initial years when total premiums would exceed total benefit payments, but it would eventually lead to net outlays when benefits exceed premiums… In the decade following 2029, the CLASS program would begin to increase budget deficits.’
“In reality, should the purported $72 billion in savings from the CLASS Act be diverted to help defray the cost of health care reform, the program could be in debt much sooner than 2029.
“The CLASS Act is intended to help people pay for the cost of receiving long-term care services at home. While well-intended, the program amounts to little more than an unfunded and financially unsound entitlement program.
“In addition to the CBO analysis, the non-partisan Concord Coalition said the CLASS Act would eventually require an infusion of government revenue to maintain its solvency. Meanwhile, a joint analysis by the American Academy of Actuaries and Society of Actuaries concluded that the program could be insolvent as early as 2021.
“The high rising cost of long-term care threatens the financial and retirement security of all Americans. Helping Americans address this challenge is a necessary goal that requires sound public policy solutions, not another entitlement program that is doomed to failure.
“There are more responsible ways to address Americans’ long-term care concerns that have broad, bipartisan support. These include increasing funding for education about the cost of long-term care; expanding the Long-Term Partnership Program, which helps ease state Medicaid burdens; and allowing workers to purchase long-term care insurance with pre-tax dollars. These are just some of the ideas that would do more to help those preparing for their long-term care needs than the inadequate, financially unsound CLASS Act.”
(No Mention Of Grandma’s New Wheelchair Tax)
|U.S. Congress Washington, DC 20515|
|November 25, 2009|
|Honorable Tom Harkin Chairman Committee on Health, Education,|
|Labor, and Pensions United States Senate Washington, DC 20510|
|Dear Mr. Chairman:|
|In response to several questions that CBO has received, this letter provides additional information on the budgetary effects of proposals to establish the Community Living Assistance Services and Supports (CLASS) Program.|
|H.R. 3962, the Affordable Health Care for America Act, as passed by the House of Representatives, and the Patient Protection and Affordable Care Act proposed by Senator Reid contain very similar proposals regarding a new federal program for long-term care insurance. Both proposals would establish a voluntary program for such insurance, termed the Community Living Assistance Services and Supports program. The key difference between the two proposals is in the population eligible to enroll: H.R. 3962 would allow both active workers and nonworking spouses to enroll, while the Senate proposal would allow only active workers to participate. For both the House and Senate versions of CLASS, the Congressional Budget Office (CBO) estimates that the cash flows under the new program would generate budgetary savings (that is, a reduction in net federal outlays) for the 2010-2019 period and for the 10 years following 2019, followed by budgetary costs (an increase in net federal outlays) in subsequent decades.Because participation in the program would be voluntary, collections of insurance premiums under CLASS would be recorded as offsetting receipts (a credit against direct spending).|
|On balance, CBO estimates that the version of CLASS specified in H.R. 3962 would reduce deficits by $102 billion over the 2010-2019 period, while the version contained in the Senate proposal would reduce deficits by $72 billion over that period. The following discussion provides additional information on CBO’s estimates for those proposals, including information on their longer-term effects.|
|The Community Living Assistance Services and Supports proposals in H.R. 3962 and under consideration in the Senate would each establish a voluntary federal program for long-term care insurance that would be administered by the Secretary of Health and Human Services (HHS). Under both proposals, individuals could purchase coverage that would provide specified future benefits, with premiums set so that the program would be in actuarial balance over 75 years. (Actuarial balance means that expected insurance premiums plus the interest earned on such premium income would equal or exceed the expected cash payments for future benefits and the administrative costs of operating the program.) Premiums would vary only according to the enrollee’s age when he or she enters the program. Once enrolled, an individual’s premium would generally remain the same for as long as that individual remained in the program. H.R. 3962 would allow active workers and their nonworking spouses to enroll, while the Senate proposal would allow only active workers to participate.|
|In general, enrollees would have to pay premiums for five years to be vested in the program (that is, eligible to receive benefits in the event they become functionally disabled). Vested enrollees who need assistance performing at least two or three common daily activities such as dressing, bathing, and eating would receive cash benefits to pay for support services in a community setting. Severely impaired enrollees could apply their benefit toward the cost of residential care in a nursing home facility. The benefit would be at least $50 per day (indexed for inflation); the Secretary of HHS would set benefit levels based on the extent of enrollees’ impairment. CBO assumed that the Secretary would initially establish an average daily benefit of about $75 (indexed for inflation). That figure includes an average benefit of $50 per day for impaired enrollees living in the community and larger amounts for enrollees who become institutionalized. Benefit payments made through the CLASS program would not be considered as income in determining an enrollee’s eligibility for Medicaid.|
|Both the House and Senate legislation would provide considerable authority to the Secretary to adjust premiums for both current and future enrollees and to reduce benefits to the daily minimum of $50 in order to maintain the solvency of the program.|
|Budgetary Effects Over the Next 10 Years|
|CBO’s estimates of the CLASS provisions in H.R. 3962 and in the Senate proposal differ because of the treatment of nonworking spouses in the two proposals. CBO estimates that the inclusion of nonworking spouses in the House proposal would increase expected future benefit payments (and would increase premiums correspondingly) because nonworking spouses who enroll in the program would be expected to be less healthy, on average, than active workers, and therefore more likely to become functionally impaired in later years and qualify for benefits.|
|H.R. 3962. CBO estimates that under the House-passed version of the CLASS program, the average monthly premium in 2011 would be about $146 (premiums for new enrollees would increase with inflation in later years). Expected enrollment in the program would reach slightly more than 10 million people by 2019 (or about 4 percent of the adult population). The estimated premiums are calculated to be adequate for the program to remain solvent for 75 years, taking into account the interest income that would be generated on unspent balances in the program’s trust fund. (Because most enrollees would not receive benefits for many years, the fund would accumulate significant balances in the early years of the program.)|
|Over the 2010-2019 period, CBO estimates that the House-passed version of the CLASS program would reduce federal budget outlays by about $102 billion (see Table 1). This deficit reduction would occur in part because no benefits would be paid out during the first five years the program was in operation. Premium receipts would total about $123 billion over the 10–year period, and benefit payments would amount to $20 billion, CBO estimates. For those 10 years, administrative costs associated with operating the program would be 3 percent of premiums, as specified in the legislation, or about $4 billion. The program would generate about $2 billion in savings (over the 2010-2019 period) in the Medicaid program because, once an individual became eligible to collect benefits under both the CLASS and Medicaid programs, a portion of the CLASS benefit would go toward offsetting Medicaid costs. Medicaid would continue to provide the full array of long-term care benefits—to the extent that the individual was eligible—but the CLASS program would defray some costs that Medicaid would have otherwise paid.|
|The Senate Proposal. CBO estimates that under the current Senate proposal for CLASS, the average monthly premium in 2011 would be about $123 (premiums for new enrollees would increase with inflation in later years), and enrollment in the program would be slightly less than 10 million people by 2019 (or about 3.5 percent of the adult population). The slightly lower enrollment expected under the Senate proposal stems from the exclusion of nonworking spouses (as would be allowed under H.R. 3962). However, a higher percentage of those eligible would be expected to enroll under the Senate proposal because of the lower estimated premium.|
|Over the 2010-2019 period, CBO estimates that the Senate version of CLASS would reduce federal outlays by about $72 billion (see Table 2). Premium receipts would total about $88 billion over the 10–year period, and benefit payments would amount to about $14 billion, CBO estimates. For that period, administrative costs associated with operating the program would be 3 percent of premiums, as specified in the legislation, or less than $3 billion. The program would generate almost $2 billion in savings in the Medicaid program over the next 10 years.|
|Projections of premium receipts and benefit payments beyond the 10-year budget window (2010-2019) are subject to more uncertainty than projections for the first 10 years, and detailed year-by-year projections of those amounts would not be meaningful. Among other factors, a wide range of changes could occur—in people’s health and disability status, in the evolution of private long-term care insurance, and in the delivery of medicine—that are likely to be significant but are very difficult to predict, both under current law and under the House and Senate proposals. As a result, CBO is only able to give a broad assessment of the potential budgetary outcomes in future decades, based on the underlying structure of the long-term care proposals.|
|CBO estimates that both the House and Senate versions of the CLASS program would reduce the federal budget deficit in the second decade following enactment of the legislation (2020-2029), but by smaller amounts than in the initial decade. By the third decade, the sum of benefit payments and administrative costs would probably exceed premium income and savings to the Medicaid program. Therefore, the programs would add to budget deficits in the third decade—and in succeeding decades—by amounts on the order of tens of billions of dollars for each 10-year period. The House-passed version of CLASS, which would reduce the federal budget deficit in the first 10 years by an estimated $30 billion more than would the Senate version, would likewise add somewhat more to the deficits in the third decade and beyond than would the Senate proposal. (That is, the greater participation and poorer health status of enrollees under the House version would lead to larger benefit payments in those later years.)|
|The CLASS program would add to budget deficits in future decades even though the proposals require the Secretary of HHS to set premiums to ensure the program’s solvency for 75 years. Because of the extended time horizon involved in long-term care insurance and the build-up of unspent premium receipts, income from interest on accumulated fund balances would play a large role in financing the program’s benefits. Typically, enrollees pay premiums for many years before some of them become disabled and qualify for benefits. Private issuers of long-term care insurance finance benefit payments from their reserve of accumulated premium receipts and the income they derive from investing those premiums. Similarly, the Secretary would invest CLASS program premium receipts in federal securities and would incorporate that expected income into calculations of appropriate premiums to charge. However, trust fund income from investments in federal securities would be an intragovernmental transfer within the federal budget. As a result, from a budget scorekeeping perspective, the CLASS program would inevitably add to future deficits (on a cash basis) by more than it reduces deficits in the near term, even though the premiums would be set to ensure solvency of the program.|
|Key Caveats. These estimated effects of the CLASS proposals are subject to considerable uncertainty, for several reasons. The budgetary impact would depend importantly on the number of people who would enroll in the program and the health status of those enrollees later in life. That would depend, in turn, on peoples’ perceptions about their need for long-term care insurance and their comparison of the premiums they would have to pay in the CLASS program with the value of the future benefits the program would provide. CBO’s estimate of the premiums that would be required to ensure the programs’ actuarial soundness over 75 years is based on projections of future trends in the prevalence of disabilities and in the ways that care for people with disabilities will be provided. Though some insight can be obtained from the experience of private-market insurance, both of those trends are subject to substantial uncertainty. Moreover, under the CLASS proposals, the Secretary of HHS would be given great latitude in administering the program, which adds to the uncertainty about the program’s cash flows because benefit and premium levels could be set at different levels than CBO has estimated and could be adjusted over time in a variety of ways.|
|The CLASS program could be subject to considerable financial risk in the future if it were unable to attract a sufficiently healthy group of enrollees. Relatively healthy enrollees would ensure that the program’s premiums and the interest on those premiums would be adequate to pay for future benefits. However, attracting healthy enrollees could be challenging for several reasons. One reason is that the administrative costs of the program are limited to 3 percent of premiums, which might mean that the Secretary would not have sufficient funds to effectively market the program to a large number of people. A relatively small enrollment would increase the risk of adverse selection and could undermine the long-run stability of the program. (On the other hand, by keeping administrative costs to a minimum, the CLASS program might attract relatively healthy enrollees because the resulting premiums could be lower than the premiums that would be charged for many private policies that have substantially higher administrative costs and devote a share of their premiums to profit.)|
|Another reason why attracting health enrollees could be a challenge is that the CLASS program would have to enroll all eligible people who apply, making it likely that some enrollees would be people who were unable to obtain coverage in the private market because of their poor health status. To avoid insuring people with a higher-than-average probability of eventually receiving benefits, private insurers employ extensive underwriting of policies sold in the individual market (that is, people are charged different premiums depending on their expected future need for care), and market coverage selectively in the employer market.|
|The program includes provisions that would allow employers, at their option, to automatically enroll employees in the CLASS program. That feature could help to boost participation in the program and thereby mitigate the risk of adverse selection. However, the proposals would not require employers to auto-enroll their employees, and employees would have the right to opt out of the coverage altogether, reducing the likely effects of auto-enrollment to stimulate participation in the program.|
|I hope you find this information helpful. If you have any questions, please contact me. The CBO staff contacts are Bruce Vavrichek and Stuart Hagen.|
|Douglas W. Elmendorf Director|
|cc: Honorable Michael B. Enzi|
|Ranking Member Honorable Harry Reid Majority Leader|
|Honorable Mitch McConnell Republican LeaderHonorable Christopher J. Dodd
Identical letter sent to the Honorable George Miller.