In 2007, Senator Ted Kennedy introduced the Community Living Assistance Services and Support Act (CLASS) into the Senate. The proposed bill was designed to provide Long Term Care related coverage to the American people. The plan would provide coverage for nursing home, assisted living and home health care services not provided by Medicare, but expanded coverage beyond the senior population. The plan called for compulsory contributions via payroll for all Americans age 18 and over and services would be provided after 5 years of enrollment. The bill died almost as fast as it was introduced. Republicans immediately opposed the bill which would was technically a form of nationalized, compulsory-based health care and blue-dog Democrats fearful of the costs, auto-enroll provisions, lack of benefits and devastating affect on the long-term care industry helped to prevent the legislation from moving forward.
In March of this year, with overwhelming Democratic majorities, the Kennedy CLASS act was reintroduced in the house and senate with hopes that Democratic leadership could now use their majorities and the popularity of President Obama to institute a government controlled long term care insurance program. However, the passage of such legislation remained uncertain. Shortly after re-introduction, Democratic leadership was presented with a golden opportunity with the call for comprehensive Health Care Reform to abandon the CLASS act as stand-alone legislation and insert the provisions of the act into the overall Health Care Reform package. Expecting a quick passage and a public focus on medical insurance, Democratic leadership hoped that the creation of the CLASS program would go overlooked. As a result, every Democratic version of health care reform in both the House and Senate has incorporated toned down provisions of the CLASS Act.
Within the President and Democrats health care proposals is the creation of a Community Living Assistance Services and Support program and agency. The program would develop a voluntary, guaranteed-issue government run long term care insurance program. Under the program, Democrats abandoned the opt-out system in lieu of a opt-in enrollment procedure. In addition, the initial proposed premiums of no more than $65 per individual and as low as $5 per month for those under the poverty line were replaced with language that would allow the CLASS committee to determine premiums based upon a 70 year solvency of the program. However, because the government-run long term care insurance program would not be self-sufficient the committee would be allowed to arbitrarily set premiums at artificially low levels and seek appropriations to subsidize the program. In other words, premiums would not be based upon sound actuarial practices, but rather the suggestion of Washington bureaucrats.
Just 12 years ago, nearly 500 insurance companies offered the sale of long term care insurance. However, the relatively new nature of the products, an aging population and lack of claims experienced created an environment whereas companies set premiums and benefits based upon marketing preferences. As a result, companies offering exorbitant benefits and artificially low premiums were forced to abandon the long term care marketplace due to losses and higher than expected claims payouts. Today, less than 20% of those companies still offer long term care insurance for sale and the companies that have survived such as Genworth, John Hancock, State Farm and Mutual of Omaha are companies that priced their product properly and had extensive experience within the industry.
If the CLASS provisions are enacted in the health care reform package, these companies would now be forced to compete with a government run plan which offers guaranteed insurability, bureaucratically established and artificially low premiums, a plan subsidized by taxpayers and not required to have any regard to losses suffered under the plan. The end result would mean a drastic decrease in the number of long term care insurance policies sold, a shrinking pool of policyholders and an aging pool of policyholders. Such companies would have no choice but to raise premiums which would inevitably result in fewer sales and the replacement of policies as policyholders replace private coverage with lower premium policies offered by the government. The end result would be the death of the private long term care insurance industry and the subsequent loss of thousands of jobs.
In addition, based upon our experience with Medicare, the CLASS program would eventually be forced, especially considering the lack of any underwriting, to implement cost containment measures to deal with a lack of premium revenue and increasing claims suffered under an aging population. Having driven private competition out of the marketplace the politically appointed bureaucrats would now have unheard of powers in regards to our nations long term health care.
As a result of a the public and media's misconception that Medicare currently covers long term care related costs, the CLASS provisions have been given no attention. Long Term Care insurers and related associations are the only organizations raising the alarm.
As stand-alone legislation, the CLASS act overwhelmingly failed despite Democratic majorities. Even with the re-introduction of the CLASS act this year, congressional leaders knew that the legislation was likely to fail passage. As a result of the comprehensive Health Care Reform movement, the American people may now forced to accept the implementation of a government takeover of the long term care industry that never would have passed on its own.
Comments
Roll Call published a similar story on July 29th that has been largely ignored. The insurance industry has begun sending out legislative alerts to their agents to urge them to contact their representatives and senators.
On July 15th the Frank Pallone introduced an amendment in the House Energy & Commerce mark-up to include the CLASS act. Sensing trouble he immediately withdrew the amendment and re-submitted an amendment the following week that nearly identical the provisions of the CLASS act without specifically referring to them as CLASS Act. In July the senate HELP committee completed their Health Care Reform mabill mark-up and specifically included the CLASS Act provisions. Every leading LTC insurer, the ACLI and AHIP have come out in opposition of the provisions. In July the American Academy of Actuaries released a report of the adverse consequences of the proposed legislation and unsustainability of such a program.
Excellent article pointing out the dangers of government run healthcare. We have allowed the feds to establish medicaid, medicare, and soc sec. Look at how that's been managed and the near insolvency. If the goal of the fed is to cover everyone for everything, with demographic projections, we can expect fed tax rates alone to go to 50% or more on all americans, not just the wealthy. The question is: do we want a socialized system in the US or a private system and is everyone willing to pay the price for that? Or, do we want to take responsibility for ourselves or have public mandates?
Current CLASS Act estimates are for premiums closer to $120/month - hardly competitive with higher quality coverage available through private insurance. The number of insurers starting in this market is no where near 500 - more like 150 at most at its height and since the start about 15 companies account for 75% of policy sales. Other "stable" carriers who have not had rate increases because of sound pricing and risk management from the outset include NY Life and Northwestern Life and others, not just the ones mentioned here.
Just a few minor additions to an otherwise useful article.
Actually ET you are wrong...I work for a senior brokerage at the height of the marketplace in the late 90's there were close to 500 companies offering coverage and the industry has shrunk to less than 85 companies today. The non-partisan Acturial Association estimates the cost of providing the $50/day benefit would create premiums of $160-$170 per month. However, there is no requirement within any legislation that the program remain self-sufficient and the explicit requirement of subsidized premiums for based upon income. This legislation will create a low-cost program that drives sound companies out of business and provides coverage that fails to provide adequate coverage.
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