A March 17th hearing on the Community Living Assistance Services and Supports (CLASS) Act had more of a July 4th sensibility, with fireworks igniting before the U.S. House Committee on Energy and Commerce Subcommittee on Health.

Both sides of the political aisle selected comments by Secretary of Health and Human Services Kathleen Sebelius to support their argument in favor of or against CLASS, which was enacted as part of the landmark Patient Protection and Affordable Care Act and is seen by some industry observers as a teachable moment about the role of long-term care insurance.

For example, U.S. Rep. Joe Pitts (R-Pa.), who chaired the hearing, quoted Sebelius’ testimony before the Senate Finance Committee about the plan being “totally unsustainable.” But Tony Young, a senior public policy strategist with the National Institute for the Severely Handicapped, pointed out that she announced “important steps” that would address such concerns as they pertain to “earnings minimum levels, adjusting premium levels to account for inflation, and strengthening fraud, abuse, and waste loopholes that might threaten the program.”

Fred Upton (R-Mich.), who chairs the House Energy and Commerce Committee, described President Obama’s request for about $120 million to begin funding the program by October 2012 as “shocking” in the face of “historic deficits.”

Actuaries from the Centers for Medicare and Medicaid Services believe CLASS will be in the red by 2025 — five years ahead of a Congressional Budget Office estimate, according to Pitts. He also cited a colorful remark by North Dakota Democratic Sen. Kent Conrad, who dismissed CLASS as “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.”

Avoiding catastrophic results?

A completely different view emerged in testimony by William L. Minnix, Jr., president and CEO of LeadingAge, a nonprofit that examines issues associated with an aging population. Noting that the CLASS Act is supported by more than 270 consumer, provider and faith-based organizations, he said the plan not only promotes personal responsibility and choice among consumers, but it also is “not a government entitlement program and stands on its own financial feet.” Minnix added that without a program like CLASS, the nation runs the risk of an “unacceptable and catastrophic” outcome whereby Americans would be unable to absorb the “substantial cost of long-term services and supports.”

While praising a requirement that CLASS be actuarially sound for 75 years with no support from taxpayers, Milliman actuary Al Schmitz said the program’s design would undermine that objective. For example, he explained that adverse selection “could necessitate significant future increases in premiums and/or reductions in benefits.” Schmitz, therefore, recommended several program tweaks, including a requirement that participants work a minimum of 20 to 30 hours, as well as restrictions on one’s ability to opt out and subsequently opt in to the program. Other suggestions included the use of a benefit elimination period and benefits reimbursement rather than on a cash basis, as well as scheduled premium increases for enrollees at either a consumer price index or alternative rate.

Adverse selection could easily result from a benefit design featuring guaranteed issue without underwriting and the same premium being charged to enrollees who are the same age, regardless of their health status, explained Joseph R. Antos, Ph.D., Wilson H. Taylor scholar in health care and retirement policy for the American Enterprise Institute. The danger is that such an arrangement would “virtually guarantees a selection death spiral, with premium increases that will drive out all but those who are most likely to need services,” he warned.

One question that was raised by several speakers involved whether federal tax dollars were worth investing in an issue of low importance in the pantheon of employee benefits in a challenging economy. Mark J. Warshawsky, Ph.D., director of retirement research for Towers Watson and a member of the Social Security Advisory Board, noted that “employers would need to judge whether there is room in their employees’ paychecks for $200 to $250 monthly premiums for a voluntary long-term care insurance program when Medicaid coverage is available to many workers, and health care costs continue to rise rapidly.”

CLASS proponents played up the need to strengthen the nation’s financial safety net for a vulnerable segment of the population. Young, who became disabled at age 18 during a body surfing accident 40 years ago, said the program would ensure that Americans “have a way to gain some financial and emotional security for an unknown future. Believe me; life is full of unexpected turns.”

— Bruce Shutan is a freelance writer based in Los Angeles.

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