The cost of caregiving and the demise of CLASS
May 2, 2012 2 Comments
AARP estimates that around 25 Million persons are providing unpaid caregiving to a loved one with a disability, and that those who do so while juggling market work lose around $325,000 in lifetime income after accounting for foregone wages, income from Social Security, and private pensions. The worst part of the demise of the CLASS provisions in the Affordable Care Act has been the fact that the majority of the focus was on the impact of CLASS on the 10 year deficit score assigned to the bill be the CBO (it accounted for around half of the ACA’s deficit reduction), diverting attention from one of the most profound public policy questions facing our nation:
CLASS wasn’t an accounting gimmick, but an attempt to set up a self sustaining, voluntary LTC insurance program that would provide modest benefits (not enough for a nursing home; best thought of as aiding aging in place) to persons with disabilities. If CLASS had worked perfectly and been a self sustaining program, it would have decreased the deficit in the short term, while increasing the deficit in the out years. As I wrote in December, 2009 about CLASS:
…Proponents claim that CLASS is self-financing over the long term, and opponents say it will increase the deficit in later years. Both are correct.
It is hard to project what will happen with CLASS, mostly because of uncertainties regarding disability rates 30-plus years from now, but there are numerous provisions designed to ensure that the program is self-financing. Regarding the long-term deficit, when a program runs a surplus, it buys federal securities that pay interest. When interest is later used to pay for care, it is counted as a transfer instead of revenue. Therefore, CLASS will inevitably increase the deficit in years 30 to 75 even if it pays for itself totally through premiums and interest earned on premiums, given current budget accounting rules. [update: it would add to the deficit before the 30th year]
One of the key beneficiaries of a self sustaining LTC insurance program would be the adult children of the disabled–who provide unpaid caregiving, with all the related harms (there are also benefits). CLASS was flawed, but could have been fixed had we focused on the policy goal–how will we insure LTC as the baby boomers move into retirement? I think the federal budget deficit is very important to address, but you cannot answer all important policy questions using deficit accounting. The CLASS episode whereby LTC policy was lost in a sea of deficit accounting scores shows this.