Kennedy's legacy on health bill

BILL SUMMARY

The Need for the CLASS Act
Long-term supports and services are an area that is not currently affordable or accessible for millions of Americans. Approximately 5 million people under age 65 living in the community have long-term care needs. There are more than 70,000 workers with severe disabilities in the nation today who need daily assistance to maintain their jobs and their independence. Many of the people that need long term services and supports rely on unpaid family and friends to provide that care. Demographic trends suggest that these sources of support will be increasingly scarce in the coming decades. Therefore, paid assistance will be increasingly needed by people with disabilities.
It is estimated that 65% of those who are 65 today will spend some time at home in need of long-term care services – which costs on average almost $18,000 per year. Currently one and a half million people are in nursing homes. Approximately 9 million elderly Americans will need help with activities of daily living (ADLs) or intermediate activities of daily living (IADLs) during the current year – and by 2030 that number will increase to 14 million.
However, contrary to popular belief, Medicare and most private health insurance only pay for long-term care for a short period of time, meaning that most people pay out of their own income or assets. Those with the most intense needs will frequently exhaust their assets and rely on Medicaid. Through the CLASS Act, a new voluntary long-term care services insurance program will provide a lifetime cash benefit that offers seniors and people with disabilities some protection against the costs of paying for long term services and supports, and it helps them obtain services and supports that will enable them to remain in their homes and communities.
How the Program Works
CLASS is a voluntary, self-funded program for people who are currently employed. Affordable premiums will be paid through payroll deduction, if an individual’s employer decides to participate in the program. In this case, people who do not want to participate may opt out of the program. Self-employed people or those whose employers do not offer the benefit will also be able to join the CLASS program. Participants must pay premiums for five years and work for 3 years in order to qualify for benefits.
One of the ways the CLASS program is unique is that it relies less on medical underwriting than do most private insurance plans. All working Americans can participate in the CLASS program. The conditions for qualifying for benefits are the same as those commonly used in private insurance plans – when participants in the program need help with a set number of activities of daily living, they will be assessed and, if eligible, start receiving benefits.
The CLASS Act seeks to empower consumers. Individuals usually know best which services and goods they need to stay independent.  Yet they can also use help navigating the complicated health and long term services market place. For these reasons the CLASS Act provides an average cash benefit of $75 per day, so that participants have the most flexibility to meet their own needs. The actual cash benefit will depend on a person’s level of impairment. Counseling, coordination and advocacy services to facilitate the receipt of high quality services will be available to every beneficiary.
Actuarial Framework
CLASS is a program that stands on its own financial feet. It is not a government entitlement program and it does not affect receipt of or eligibility for other benefits, such as Social Security, SSI or SSDI.  If an individual uses Medicaid services, the CLASS benefit will be used to offset part of the cost of community based, residential or nursing home care.
Voluntary long term care insurance poses challenges for establishing a solid financial structure. Early formulations of the CLASS Act faced concerns over its financial viability. Through constructive interaction with the industry and other interested parties, several changes in the program were made to address those concerns. First, spouses are not eligible as dependents, decreasing the amount of adverse selection possible in enrollment. Second, the Secretary of HHS has flexibility in premium determination to ensure 75 year solvency, and flexibility in setting eligibility requirements for the receipt of the cash benefit (either 2 or 3 ADLs). Third, premiums are age-rated.
All told, these changes ensure that the CLASS program is financially viable and self-sustaining long into the future.
The Participation Question
 
In its modeling assumptions, the Congressional Budget Office assumes a 5% participation rate in the CLASS program, following current participation rates for private long-term care insurance. However, there a number of sound reasons to believe that participation in the CLASS program will be substantially higher than the 5% figure – which would further strengthen the financial outlook for the program.
First, the benefit in the CLASS program is a cash benefit, rather than a service-based payment. The ability to flexibly address one’s own needs by purchasing anything from a caregiver’s services to orthotics to a shower chair will make this program more attractive to consumers than traditional long-term care insurance. This is expected to translate into higher participation rates.
Second, the CLASS program is a lifetime benefit. In contrast, only 4% of group long-term care insurance products and 20% of individual long-term care insurance products have a lifetime benefit. As a lifetime cash benefit, this program will generate increased interest and participation.
Third, the CLASS program, unlike private long term care insurance, entails the ease of autoenrollment and payroll deductions for premiums. While the program maintains its voluntary nature through an employee opt-out, the autoenrollment feature will increase participation levels above that expected for proactive enrollment, a trend that has been demonstrated with 401(k) plans, and that underlies automatic enrollment in the Federal Employees’ Group Life Insurance (FEGLI) plan, where enrollment rates are 84%.
Fourth, government endorsement of the plan could be expected to increase participation. The Long Term Care Partnership Program, for instance, found that people who enrolled in private long term care insurance plans reported that the endorsement of the State was an important factor in the decision to purchase.
Long-Term Savings
Beyond being a self-supporting voluntary program, the CLASS Act program can be expected to generate long-term savings in Medicaid. First, there is the direct offset of the $75 daily benefit which is applied towards any Medicaid long term care costs. But beyond that, the CLASS program will help people live independent lives at home and in the community. When people with disabilities get the services they need, they are less likely to enter a nursing home or hospital.
The average $75 daily cash benefit in the CLASS program – which is the equivalent of $27,375 a year – could certainly enable someone to purchase services in the community, delaying and avoiding more expensive institutional care. In fact, the cash benefit is larger than the average yearly cost of home health services ($18,000). Based on 2008 caregiver prices, $75 a day can purchase 2 ½ hours of daily service from a home health aide, 4 hours of daily service from a homemaker, and cover all of the daily cost of an Adult Day Care Center.
While the CLASS program is innovative – and therefore without exact precedent – there are examples and systematic evidence that demonstrate the ability of community-based services to avoid or delay more expensive care in an institution. One study showed that the “Cash and Counseling” program, which provides a cash benefit towards home health services, reduced nursing home use 18% over 3 years. Another study of expansions of home and community based services through Medicaid waivers from 1995 to 2005 revealed that states with high spending on Medicaid HCBS had 15 percent less Medicaid spending on nursing home care than states with low spending on HCBS. As a result, expansion of HCBS entailed a reduction in institutional spending, and long-term cost savings after the initial investment in establishing community services.
A driving force behind entry into a nursing home is caregiver stress. It has been estimated that eliminating high caregiver stress would prevent 73,900 long-stay nursing home admissions over a two year period (roughly one quarter of all long stay nursing home admissions). Providing a cash benefit under the CLASS program to enable people to buy additional caregiver services could therefore be expected to avoid admission into a nursing home.
A consumer-directed benefit like that set out in the CLASS program has the additional advantage of increasing consumer satisfaction with services. When consumers directly hire their caregivers (as is the case with a cash benefit), both the consumer and care worker report higher rates of satisfaction, making home-based care through a consumer-directed approach a sustainable alternative for institutional care.
For all of these reasons, the CLASS program can be expected to generate long-term savings, while also enabling a growing older and disabled population to maintain functional lives in their homes and communities.