Implications for the future of long-term care
Neil M. Issar, BSc; Hassan R. Mir, MD; William T. Obremskey, MD, MPH; A. Alex Jahangir, MD; and Manish K. Sethi, MD
The importance of the Patient Protection and Affordable Care Act (PPACA) is undeniable, because it will transform the American healthcare landscape. In considering the extent to which health care will change in the next decade, however, one must recognize the dichotomy between passing legislation and executing policy.
Although PPACA offers possibilities for tectonic shifts in American healthcare policy, questions surround the plan’s actual implementation and financial sustainability. The demise of the Community Living Assistance Services and Supports (CLASS) Act serves as one example. Although this issue was downplayed in Washington, D.C., and discussed minimally in the media, it is of critical importance.
The CLASS Act
A substantial component of the 2010 PPACA, the CLASS Act was a voluntary, government-administered program open to all working Americans. It would have provided a basic lifetime benefit of a least $50 a day (indexed to inflation) in the event of prolonged physical illness, disability, or severe cognitive impairment (such as Alzheimer’s disease) that keeps a person from living independently. In its initial assessment, the Congressional Budget Office (CBO) projected that collected premiums and reduced Medicaid expenditures because of the CLASS Act would shrink the federal deficit by $70 billion over the next 10 years.
Defects and demise
Before PPACA was passed into legislation, members of Congress raised concerns regarding the CBO’s estimates. One major criticism was that premiums collected could not be “double counted” as both federal savings to cover the cost of other PPACA entitlement expansions and funds to pay for program benefits under the CLASS Act.
Critics also questioned the program’s solvency over the long term and the affordability of the proposed benefit for consumers. Because solvency was directly related to the CBO’s savings projections, members of Congress voiced concerns about the potential increase in the nation’s deficit if the program proved insolvent and the original projected savings were never realized. Accordingly, former Sen. Judd Gregg (R-N.H.) inserted a provision in PPACA that required the U.S. Department of Health and Human Services (HHS) to deem the CLASS Act as actuarially sound for 75 years.
Although a public insurance program that relieved the burden on Medicaid would have been a boon, the CLASS Act was hampered by several design flaws that made its demise inevitable. Specifically, the inability to ensure enrollment, reduced underwriting compared to private insurance plans, and the impractical goal of maintaining solvency over 75 years doomed the CLASS Act to massive legislative revisions. With the loss of a Democratic supermajority in early 2010, HHS had no choice but to abandon the program, recognizing that the modifications needed would never pass Congress.
On Sept. 21, 2011, the Senate Appropriations Committee deleted the entire $120 million that had been earmarked for the annual design and marketing of CLASS policies from the 2012 HHS budget. The deletion received no opposition from the White House, and within days, the HHS effectively disbanded the CLASS program office. Moreover, on October 14, 2012, HHS secretary Kathleen Sebelius announced that she was abandoning the program. The decision left the nation without a broad policy solution to the problem of financing long-term care.
The 2010 PPACA legislation boasted a projected total savings of $210 billion between 2013 and 2019; the original projected savings due to the CLASS Act accounted for one third of the overall savings. Without this component of the legislation, the projected budget savings will dramatically decline, jeopardizing the original implementation plan. Moreover, policy makers must now find new ways to pay for the personal care needs of adults with disabilities.
Currently, Medicaid pays for nearly half of personal assistance care, whether delivered in nursing facilities or in a person’s home through home- and community-based care programs. Yet Medicaid, which is funded by both the federal government and the states, faces severe economic pressures of its own. Federal Medicaid long-term care spending will almost certainly come under pressure as Congress seeks ways to reduce the massive budget deficit, and Medicaid eligibility requirements will essentially force Americans to deplete their financial assets.
These problems are compounded by the rising cost of long-term care. The Genworth 2011 Cost of Care Survey demonstrated that the cost of care among facility-based providers has steadily increased over the past 6 years. For example, in 2005, the median annual rate for a room in a private nursing home was $60,225; by 2011, the median annual rate had risen to $77,745, a 4.35 percent compound annual growth rate. The study also found that the cost of a home healthcare aide averaged $19 an hour across the nation.
Currently, the only other ways to pay for personal assistance services are personal savings and private insurance. But one half of Americans age 65 and older have financial assets of less than $55,000, and only about 7 million Americans have private long-term care insurance, which suffers from a lack of inflation protection and lack of a lifetime premium guarantee. The affordability of private insurance is not going to improve, and sales have stagnated for years.
After announcing the demise of the CLASS Act, HHS Secretary Sebelius wrote to Senate leaders declaring that “by 2020, we know that an estimated 15 million Americans will need some kind of long-term care and fewer than 3 percent have a long-term care policy … these Americans are our family, our friends, and our neighbors. If they are to live productive and independent lives, we need to make sure that they have access to the long-term care supports that make that possible.”
The future of long-term care
Although the CLASS Act was only one component of PPACA, it demonstrates the clear difference between politics and the implementation of policy—in other words, where “the rubber meets the road.” The changes in CBO’s projections and the subsequent nullification of the assistance plan call into question the longer-term realities of other components of PPACA. Policy makers are analyzing a variety of solutions, and the demise of the CLASS Act affects both providers and proponents of healthcare reform.
“With the CLASS Act option being removed from the discussion, the onus is back on private insurance to provide quality long-term care protection,” said Bruce Moon, a vice president for the OneAmer-ica companies, which provide retirement plan products and services, individual life insurance, annuities, long-term care solutions, and employee benefits. In particular, Mr. Moon believes asset-based long-term care products, such as deferred fixed annuity or life insurance policies with linked long-term care benefits, are significantly better options than paying regular premiums to cover long-term care risk.
Several individuals and corporations have similarly proposed a system built on private insurance rather than government coverage. Rather than mandating enrollment, such a system could include a combination of penalties and rewards to encourage people to buy long-term care coverage at a relatively young age.
In fact, such a model already exists. The Medicare Prescription Drug Benefit (also known as Medicare Part D) involves insurance sold by private companies in a regulated and transparent environment that provides consumers the freedom to compare policies and prices. Premiums are relatively inexpensive for people who buy when they are first eligible, offset by penalties incurred by delaying their purchase. This component of Medicare may serve as a model for any future attempts to establish a federal long-term care benefit. But such a move seems unlikely, given the Act’s repeal last month.
Another solution may be life-extension options such as wellness technology and disease prevention strategies, as advocated in a report by the EraNova Institute. The report outlines awareness initiatives and financial incentives for long-term health, including long-term care insurance programs that actively promote wellness, alignment of corporate wellness programs with long-term healthcare education, and wide-ranging tax deductions for preventive care.
Some independent analysts have even proposed that the United States adopt a single-payer system with universal coverage for long-term care insurance, but support for such a system does not seem to exist on either side of the aisle in Congress.
The PPACA will certainly change America. But to what extent will the legislation itself change as its provisions are implemented? Lessons learned from the demise of the CLASS Act are important for the future of American health care.
Providers such as nursing homes, assisted living facilities, and home health agencies will look for a steady source of revenue as Medicaid begins to shrink. Simultaneously, policy makers must find a solution to the growing long-term care problem plaguing the American healthcare landscape. Physicians and patients alike must keep abreast of legislative developments to effectively traverse the transforming terrain.
Neil M. Issar, BSc; Hassan R. Mir, MD; William T. Obremskey, MD, MPH; A. Alex Jahangir, MD; and Manish K. Sethi, MD, are all associated with the Vanderbilt Orthopaedic Institute Center for Health Policy.
- The Henry J. Kaiser Family Foundation. Summary of New Health Reform Law. Focus on Health Reform.
- The Henry J. Kaiser Family Foundation. Health Care Reform and the CLASS Act. Focus on Health Reform.
- Congressional Budget Office. Cost estimate for the amendment in the nature of a substitute for H.R. 4872, incorporating a proposed manager's amendment made public on March 20, 2010.
- Congressional Research Service. Medicare Provisions in PPACA (P.L. 111-148). CRS Report for Congress. April 21, 2010.
- US Department of Health & Human Services. Secretary Sebelius’ Letter to Congress about CLASS. October 14, 2011.
- One America. OneAmerica urges older Americans to consider asset-based long-term care products. November 21, 2011.
- Gleckman H: Requiem for the CLASS Act. Health Aff 2011;30(12):2231-2234.
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