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The late Senator Edward M. Kennedy, a Massachusetts Democrat, is considered the “father”of the CLASS Act. But the national voluntary long-term care insurance program has essentiallybeen abandoned, the victim of design flaws and partisan gridlock.

doi: 10.1377/hlthaff.2011.1222

Requiem For TheCLASS ActThe demise of a national voluntary long-term care insurance programhas left advocates uncertain where the political and financial supportfor a similar measure will come from in the future.BY HOWARD GLECKMAN

Advocates for long-termcare financing reform re-joiced when, against allodds, Congress includedthe Community Living As-

sistance Services and Supports (CLASS)Act in the Affordable Care Act of 2010.The goal of CLASS, a national voluntarylong-term care insurance program, wasto make it possible for people to pur-chase government-sponsored insuranceduring theirworking years so that if they

became unable to care for themselves,they could tap a daily cash benefit topurchase services at home or in a carefacility.One of the program’s biggest backers

wasLarryMinnix, chief executiveofficerof Leading Age, a trade association thatrepresents nonprofit senior serviceproviders. When it became clear thatthemeasurewould pass, hewas ecstatic.“I felt all along it was going towind up inhealth reform,” he said. “It’s just the

right thing to do.”1

What a difference two years makes.By early 2011, advocates for CLASS

were under siege. The measure hadbeen something of a political orphansince the 2009 death of its primesponsor, Sen. Edward M. Kennedy (D-MA), and it was being sharply critici-zed by congressional Republicans andsome key Senate Democrats, includingBudget Committee chair Kent Conrad(D-ND). As far back as February, Healthand Human Services (HHS) secretaryKathleen Sebelius had acknowledgedthe insurance program as described inthe law was unsustainable.Still, Sebelius assigned a team led by

Kathy Greenlee, the HHS assistant sec-retary for aging, to find ways to makeCLASS workable. And HHS promised toprovide a first glimpse of what CLASSinsurance policies would look like bythis fall—a commitment that left backersconfident that the Obama adminis-tration would at least give the programa try.But on September 21, with no objec-

tion from the White House, the SenateAppropriationsCommittee deleted fromthe 2012 HHS budget the entire$120 million that President Obamahad earmarked for design and market-ing of CLASS policies for that year.Within days, HHS effectively disbandedthe CLASS program office. On Octo-ber 14, 2011, Sebelius—while stillacknowledging the need for some sortof long-term care financing plan—an-nounced that she was abandoning theprogram and shelving efforts to designthe CLASS insurance policies that wereto go on sale in late 2012.

High HopesCLASS might have been an importantfirst step toward shifting the financingof long-term care services from themeans-tested Medicaid program to aninsurance-based system supported byvoluntary private contributions. Butwith the demise of CLASS, that efforthas come to an end for the indefinitefuture.CLASS ambitiously tried to accom-

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plish two very different goals and, bydoing so, fell victim to serious designflaws.On theonehand, itwas to supportyounger disabled people who needed as-sistance with many of the activities ofdaily living—including bathing, feed-ing, dressing, and transportation—butwho still wanted to work. On the otherhand, itwas alsodesignedas a long-termcare insurance program for adults whobecome disabled with age.Advocates were furious at the admin-

istration’sdecision todrop theprogram,especially since the internal HHS staffanalysis—released hours after the pro-gramwas abandoned—identified anum-ber of potential changes thatmight haveled to a sustainable, although modest,insurance program. That report, how-ever, said making these changes wouldhave required Secretary Sebelius to ei-ther broadly interpret her legal author-ity to revise theprogramor askCongressto amend CLASS. She was unwilling todo the first and realized a legislative fixwas unthinkable in the current politicalenvironment.2

Fornow,CLASSremainson thebooks,but Assistant Secretary Greenlee wasemphatic that the administration hasdropped the program. “I do not wantto send amixedmessage by saying we’recontinuing to work on CLASS whenwe’re not,” she told a congressionalhearing on October 26.

Paying For Personal CareThe question now is whether policymakers can find new ways to pay forthe personal care needs of adults withdisabilities and the frail elderly. Two-thirds of people age sixty-five and olderwill need some level of personal assis-tance before they die. Without CLASS,the nation is left with only limited waysto pay for these services: a tatteredMedicaid safety net, insufficient per-sonal savings, and private long-termcare insurance that few people buy.TodayMedicaid pays for nearly half of

this care, whether delivered in nursingfacilities or in a person’s home throughits home and community-based careprogram.Yet Medicaid, which is fundedby both the federal government and thestates, faces severe financial pressuresof its own. Cash-strapped governorsare scaling back key home care benefits.For example, California Governor Jerry

Brown recently reduced funding foradult day programs. And federal Medic-aid long-term care spending will almostcertainly come under pressure as Wash-ington seeks ways to reduce its massivebudget deficit.At the same time, Americans remain

woefully unprepared to pay for this carethemselves. Half of those age sixty-fiveand older have financial assets of lessthan $55,000. Only about seven millionAmericans have private long-term careinsurance—and sales of such productshave been flat for years.By creating a public insurance pro-

gram, CLASS might have expanded thatcoverage. Its cash benefit would haveallowed people to tailor assistance totheir personal needs instead of havingto navigate Medicaid’s complex rules.For instance, a frail senior might haveused the money to add a wheelchairramp to her home or hire her niece toprovide a few hours of personal careeachday.At the same time,by increasingthe number of people with insurance,CLASS might have taken some of theburden off of Medicaid.Yet the CLASS Act suffered from sev-

eral flaws that turned out to be fatal.

Fatal FlawsOne major problem is that the programwas voluntary. Nearly everymajor devel-oped country in the world has movedfrom a means-tested long-term caremodel to universal insurance. Althoughdesigns vary fromcountry to country, allare funded, at least in part, with tax dol-lars or mandated premiums. But as therecent health reform debate showed,such a model has scant support inCongress. Senator Kennedy, always sen-sitive to the mood of his fellow law-makers, felt that there was no chancea universal program could pass.CLASS did include some mechanisms

to encourage enrollment. One provisionwould have automatically enrolledworking people older than age eighteen,although they would have had the op-portunity to opt out. However, this fea-ture would apply only where employers

offered the benefit, and CLASS neitherrequired nor encouraged companiesto participate. Thus, few private firmsshowed interest.Without a mandate, it is very difficult

to generate sufficient enrollment—espe-cially among healthy young peopleneeded to maintain a viable program.The problem, called adverse selection,is endemic to all insurance: The morelikely it is that buyerswill claimbenefits,the more premiums will cost. And thehigher the premiums, the less likely itis that healthy people will buy coverage.Private insurance mitigates this risk

through underwriting—either denyingcoverage or raising premiums for thosewith certain preexisting medical condi-tions. But CLASS would have explicitlymade insurance available to almosteveryone. Only those who were un-employed or earned less than about$1,200 a year would have been deniedcoverage. In addition, the law allowedlow-incomepeople topurchase coveragefor just $5 a month. That meant thatmany enrollees could pay just $300 overfive years and receive at least $18,000 ayear in benefits for the rest of their lives.This very broad eligibility was an at-

tempt to accomplish two goals simulta-neously. As noted, CLASS not onlywould have been an insurance programfor those seeking to hedge against therisk of needing long-term care in oldage, but it also attempted to create anew benefit for working adults with dis-abilities. This was the principal goal ofSenator Kennedy, who wanted to freepeople with disabilities from the earn-ings limitations of Medicaid that oftenmade it impossible for them to work.This is an important effort, butwith onlybuyers of insurance financing the newbenefit, premiums for most enrolleeswould be driven to unaffordable levels.Many of these flaws were recognized

soon after the Senate version of healthreform legislation, which incorporatedthe CLASS Act, passed in late 2009. Anamendment by Sen. Judd Gregg (R-NH)required the program to remain solventover seventy-five years—a goal that Cen-ters for Medicare and Medicaid actua-ries concluded would be difficult, ifnot impossible, to achieve with CLASSpolicies as described in the law.As a result, the Obama administration

quietly negotiated a series of legislative

The CLASS Act sufferedfrom several flaws thatturned out to be fatal.

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fixes to the law. These included steps toincrease the earnings requirement forparticipants from $1,200 a year to$12,000, creating a reserve fund to pro-tect CLASS premiums, and revising thelaw’s five-year vesting requirement—aprovision that would require partici-pants to pay premiums for that amountof time before being eligible to claimbenefits. These amendments wereaimed at maintaining the long-run sta-bility of CLASS.The administration intended to

present those changes to a House-Senate conference committee, whichwas supposed to iron out differencesin the Affordable Care Act. Of course,that conference never happened, be-cause Democrats lost their sixty-voteSenate supermajority in early 2010. Inthe “large ironies” department, that re-sulted because of the election to theSenate of Republican Scott Brown ofMassachusetts, who took the seat va-cated by Senator Kennedy’s death.

Political ChallengesAfter enactment of the Affordable CareAct, the administration weighed the op-tion of pursuing amendments to theCLASS program but concluded that thechanges would never pass a polarizedCongress. It chose not to offer revisionsto CLASS or any other portion of theAffordable Care Act, despite concernsand reservations about other pro-visions.The political opposition to CLASS was

based only loosely on the technical is-sues. Itmainly focused on the program’slikely impact on the federal budget.Oddly, critics simultaneously ham-mered CLASS for appearing to reducethe deficit in the short run and for po-tentially increasing it in the long run.The short-term issue resulted from the

Congressional Budget Office’s methodsfor scoring federal legislation within aten-year period. Because CLASS re-quired participants to pay premiumsfor five years before becoming eligiblefor benefits, and because benefit pay-ments would ramp up slowly in yearsfive through ten, CLASS was projectedto generate about $70 billion more inincome within that decade-long budgetwindow than it would pay out.This made it possible for some

congressional supporters of health re-

form to claim that CLASS would helpthe Affordable Care Act reduce thefederal deficit by that sum. It is widelybelieved that CLASS would never havepassed if not for that temporary wind-fall, or if it had actually cost money upfront to implement.However, the contention that CLASS

would reduce the deficit in the short runprovided an opening for its critics. Theyargued that once CLASS fundswere usedto cut thedeficit, theywouldnotbe avail-able when policyholders claimed bene-fits in future years.This mimics the oft-heard debate over

Social Security. In reality, CLASS premi-ums would be invested in Treasury se-curities, which would be redeemed at alater date when benefits have to be paid.Under federal accounting principles,these funds never disappear as criticsclaim. However, the argument that trustfunds such as Social Security or CLASSare “looted” is a politically powerful oneand helped strengthen opposition to thelong-term care insurance program. Andit was a key reason why theWhite Houseconsidered creating a special reservefund to hold CLASS premiums.In addition, the critics voiced a longer-

term fear: that CLASS insurance wouldeventually collapse, forcing the federalgovernment to turn the program into anew entitlement, at least for those whohad already purchased coverage. Withthe nation facing huge deficits, suchan underfunded entitlement was ir-responsible, critics alleged.Although the rhetoric that critics used

was overblown—Senator Conrad, for in-stance, called CLASS a “Ponzi scheme”—the policy designs described in the lawwere indeed problematic. HHS con-cluded that monthly premiums for basicCLASS policies would have averaged asmuch as $391.

Fixes Proposed But Not MadeHowever, the HHS staff proposed sev-eral alternative designs that might haveresulted in a sustainable, although quite

modest, insurance program. All wouldhave retained someof thebasic elementsof CLASS—no underwriting for preexist-ing conditions and a cash benefit, forexample—but otherwise would havestrayed significantly from the model de-scribed in the act itself.For example, HHS could have reduced

premiums for CLASS-like policies by in-creasing the work requirement from$1,200 per year to $12,000, althoughthis step would have excluded manyworking people with disabilities. HHSalso could have increased premiums an-nually for inflation instead of fixingthem at the time of enrollment—achange that would have greatly loweredpremiums for younger buyers.Other ideas included offering an op-

tion of, say, a three-year benefit of $120per day rather than CLASS’s lifetimebenefit averaging roughly $50; or evendecreasing benefits after five years. An-other revision would have phased en-rollment so employees of only largefirmswould signup first—another effortto bring relatively young, healthy work-ers into the risk pool. Combining thesechanges could have reduced the averagemonthly premium to about $100, HHSfigured.However, the department would have

had to stretch its legal authority consid-erably to revise the program. Althoughlast spring Sebelius suggested she’d bewilling to do that, serious disagree-ments erupted within HHS over thewisdom of the approach. HHS attorneysfelt that although some of the neededchanges might stand up in court, otherkey revisions would not. In the end, theadministration chose to back away fromCLASS and not attempt to push its legalauthority to try to fix the program ad-ministratively. With so many other bat-tles to fight, this one, in particular,seemed to many in the administrationto be hopeless.More broadly, as creative as these re-

forms were, they’d still be constrainedby the basic outline of the CLASS law.Thus,HHS estimated that evenwith dra-matic revisions, only about two millionpeople would probably have enrolled—far short of a broadpolicy solution to thenation’s overall long-term care financ-ing problem.

In the current politicalenvironment, it is hardto imagine a revisedCLASS program.

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Next Steps?Where will long-term care financing re-form go fromhere? In the current politi-cal environment, it is hard to imagine arevised CLASS program. Indeed, chanc-es are that the program will officially berepealed next year as part of somebroader deficit reduction initiative.Still, there are many possible solu-

tions worth exploring. For instance, in-stead of government coverage, policymakers could create a voluntary systembuilt on private insurance sold under aMedicare umbrella, as Medicare Part Ddrug coverage operates today. In thismodel, buyers could choose among fullytransparent products with easily com-parable benefits sold through an onlineexchange. Tough penalties for delayedenrollment could encourage workersto sign up as soon as they are eligible.Another option, proposed several

years ago by Yung-Ping Chen at the Uni-versity of Massachusetts, would allowpeople to trade off a small share of theirregular Social Security benefit formodest long-term care insurance.3 Athird option, now being explored inthe United Kingdom, would create alow-cost catastrophic-only public cover-age plan to supplement personal sav-ings.Andmanyother countries, rangingfrom the Netherlands to Japan, offermodels of functional long-term care in-surance programs—including Israel,which has a successful private voluntary

system that a revamped CLASS programmight have emulated.However, in the particular political

dynamic of the United States in 2011–12, none of these ideas seems likely toget political traction any time soon.After the CLASS debacle, few lawmakersare willing to revisit this difficult issue.But the problem of long-term carefinancing will only worsen as the babyboomers age, Medicaid’s safety netfrays, and both personal savings andhome equity remain under tremendouspressure. CLASS may be gone, but theproblems it was designed to address arenot. ▪

Howard Gleckman (hgleckman@urban.org) is aresident fellow at the Urban Institute, inWashington, D.C. He is the author of Caring for OurParents (St. Martin’s Press, 2009).

NOTES

1 Minnix expects Senate to includeCLASS Act in healthcare reformbill. McKnight’s Long-Term CareNews [serial on the Internet].2009 Nov 10 [cited 2011 Nov 29].

Available from: http://www.mcknights.com/minnix-expects-senate-to-include-class-act-in-healthcare-reform-bill/article/157465/

2 Department of Health and HumanServices. A report on the actuarial,marketing, and legal analyses ofthe CLASS program. Washington(DC): HHS; 2011.

3 Chen Y-P. A trade-off proposal forfunding long-term care. Washing-ton (DC): Georgetown UniversityLong-Term Care FinancingProject; 2007.

CLASS may be gone, butthe problems it wasdesigned to address arenot.

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