The Opportunities of CLASS

Establishing national responsibility for affordable health insurance was a monumental and much debated achievement. But deep within the health-reform legislation it passed last March, Congress also did something else extraordinary with hardly any fanfare: It enacted a new federal long-term-care insurance program called the Community Living Assistance Services and Supports Act.

As a public program directly run by the government, CLASS resembles Social Security and Medicare, yet it differs in critical ways that pose significant challenges for implementation. CLASS is a voluntary program that will need to enroll a broad portion of the population in order to spread its costs as widely as possible. The start-up will therefore demand wide publicity.

And because CLASS is to be financed entirely from premiums rather than taxes, the program will also require tough-minded decisions about eligibility and benefits to stay financially sound.

The need for long-term care -- for extended help in eating, bathing, dressing, or performing other basic tasks of daily life because of illness or injury -- is just the kind of risk for which insurance is appropriate. Yet neither private health insurance nor Medicare covers basic long-term services and supports. To be sure, individuals can buy private long-term-care insurance, but the policies are expensive and reach only a small proportion of the people needing protection.

That population doesn't consist just of the elderly. Of every 10 people needing long-term care, four are actually under the age of 65. Among those turning age 65 today, three in 10 are likely to die without needing long-term care, but one in five will need such services for five years or more.

With nursing-home costs averaging more than $75,000 a year and home care costing about $20 an hour, it's not surprising that many families deplete their savings to pay for long-term care and end up turning to Medicaid, which is only available to them once they qualify as needy. As valuable as its benefits are, Medicaid isn't insurance. Instead of protecting people against financial catastrophe, Medicaid kicks in only after they have suffered devastating financial losses. And the program fails to help the vast majority of people with disabilities, who live at home and want to stay there.

The CLASS Act aims to address these failures not for people who are now retired or severely disabled but for those who will need help in the future. Under the law, working-age adults can purchase public long-term care insurance by paying premiums deducted from their wages (if the employer agrees to participate), and they can continue to pay premiums on their own once they retire. If they become disabled, individuals who have contributed for at least five years will qualify for help with home-based services, assisted living, or nursing-home care. Eligibility for benefits will depend on inability to perform at least two or three activities of daily living, including eating, toileting, transferring, bathing, dressing, and continence. The benefit will be meaningful but limited -- an average of at least $50 per day for recipients to use as best meets their needs. The program is not designed to totally replace family care, personal saving, or private insurance.

CLASS is designed to be fiscally responsible over both the short and long term. The law requires the secretary of health and human services to design the benefits and set the premiums to assure that the program takes in as much money as it pays out for each generation of workers. The Congressional Budget Office estimates that a program with an average monthly premium of $123 and an average daily benefit of $75 would be self-financing over the next 75 years.

CLASS follows the model of Social Security and Medicare Part A insofar as it relies on contributions while people are working to support benefits if they become disabled. But because payment of those contributions is voluntary and the program is self-financing, the implementation of CLASS demands a careful balance between keeping down premiums to assure broad participation and offering adequate support to people in need.

To achieve the broadest possible participation, intensive public education and easy enrollment will be crucial. The law provides some funds for public information about long-term care. Under the law, employers will be able (though not required) to automatically enroll employees in CLASS and withhold premiums unless workers opt out. The experience with retirement savings accounts suggests that setting up the program on an opt-out rather than opt-in basis will raise participation significantly.

But alternative methods of enrollment will be needed. That means providing easy access to online enrollment in CLASS, tied as much as possible to workers' health-insurance decisions -- for example, through the new insurance exchanges.

The flip side of encouraging broad enrollment is making sure that the program is not deluged with people who already need services or are likely to need them soon after becoming eligible. This is the hard part because, at least at the outset, it means leaving some people out. The law is clear on this point: People who are retired or too disabled to work are not eligible to participate. To sign up for the program, individuals have to work and earn at least the amount required for a quarter-year of Social Security coverage (currently $1,120) in three of the first five years after enrolling in CLASS. The program also leaves out nonworking spouses by tying eligibility to each individual's own work experience.

To assure the program's fiscal integrity, the administration will also need to take a conservative approach to eligibility for benefits -- focusing on people with more severe disabilities -- and establish a rigorous system for assessing eligibility to ensure that beneficiaries meet the functional-limitation criteria.

Although the health and human services secretary has a lot of discretion to achieve these goals, the law may need some modification. Since CLASS benefits are indexed for inflation, the premiums should also be indexed. This change would not only help protect the program against inflation but also reduce initial premiums and thereby make coverage more attractive for younger workers. To make premiums broadly affordable, the work requirement should be increased to screen out people who already have serious functional impairments. One possibility would be to require five years of work at the level that Social Security considers to represent substantial gainful activity, currently $1,000 a month. Larger penalties for late or lapsed enrollment could encourage participation by younger workers and others less likely to claim benefits soon. The program also needs more funding for its start-up costs, including marketing.

CLASS has the potential to establish protection against the cost of long-term services and supports as an integral part of health security. Whether Americans get that protection now depends on thoughtful yet aggressive implementation of the law.