Blahous on CLASS, reform

I respect Charles Blahous a great deal as an analyst, and I like him and think that he is a nice guy. In fact, I brought you a series of interviews with him last May on the Medicare and Social Security Annual Trustee reports. However, I find his latest at e21 on the CLASS Act and health reform generally to be frustrating, because it focuses on deconstructing (CLASS and the ACA) without offering something better.

I agree with him that CLASS as passed wouldn’t work, but it is just as clear that there are policy options that could make it work and address LTC. Imagine the impact a post by him (Medicare and Social Security Trustee) offering solutions might have–saying something like “CLASS was flawed but how we deal with LTC is also flawed, and the the current default is for Medicaid to be on the hook for massive nursing home expenditures. Here is how we could move to implement a voluntary LTC insurance program. This is good for the country.”

However, I respect the idea that an adversarial political system creates better policy through the competition of ideas. Yet, in health reform, conservatives seem to be far clearer about what they are against as compared to what they are for (I mean this generally, and am not singling Blahous out here). When I hear Republicans say “lets repeal Obamacare and we will then pass common sense reforms” I can only think why didn’t you do anything from 2002-06 when you controlled both branches of Congress and the White House?*

I can respect the adversarial argument, and have spilled about 50,000 words saying the key to a long range sustainable budget is a compromise on health reform. However, it takes two sides to compromise. The House of Representatives owes it to the country to move ahead and begin marking up bills like the Patients’ Choice Act, and Rep. Ryan’s Medicare reforms in the committees with jurisdiction such as Commerce and Ways and Means to show us what they would do. They need to commit to the details so that the CBO can weigh in and we can look at both the fiscal impact and effect on the uninsured of their ideas under the same bright lights to which the ACA has rightly been exposed. And then we can decide what to do.

*Many of my conservative friends will say they did worse than nothing, they deficit financed the Medicare Part D drug benefit during this period.

Dranove on CLASS

Interesting post in the Health Care blog by David Dranove on the demise of CLASS.

We viewed this as a traditional market analysis. Anyone can enter a market and lose money – the base CLASS plan would be a poster child for this obvious point. We wanted to understand whether there were any opportunities to turn a profit in the LTCI market. We also wanted to understand why, if there are profits to be had, private insurers had not already exploited these opportunities? (emphasis added)

What we found was a rather strange market. There are lots of LTCI sellers, mostly crossovers from the life insurance market. This makes sense, because the main purpose of LTCI is to help enrollees preserve their retirement savings. The same customer who buys life insurance to make sure their next of kin are well taken care of would therefore also want to buy LTCI. These customers trust life insurers, most of whom have been around for a century or longer and can be counted on to pay out future benefits. At the same time, LTCI products are remarkably (perhaps unnecessarily, and likely strategically) complex, so customers rely on their insurance brokers to explain their options. These features helped mute competition among LTCI insurers and possibly pose entry barriers to new sellers.

Some interesting examples of ideas that were considered in their market analysis, and a fundamental question.

Putting on our strategy hats, we wondered if DHHS could come up with new product features, thereby attracting a broader base of enrollees. Exchanging ideas with DHHS economists, we came up with quite a few suggestions: tontines (where enrollees enjoy rebates of premiums if they don’t end up needing LTC), extended vesting periods before coverage began, “short term” LTCI and others. We laid out the advantages and disadvantages of each feature and we asked a critical strategy question: If these features are so promising, why aren’t private LTCI insurers offering them? (emphasis added)

There is really no evidence to suggest that private, voluntary insurance can play a key role in insuring LTC. Private insurance could potentially be the insurance vehicle used, but the biggest need in LTC is to plan ahead and pool risk. This will only happen with some sort of policy intervention such as social insurance, a mandate of some sort, or at least a strong nudge.


From the archives: What is the best way to insure LTC?

The post below was initially published in TIE on July 20, 2011, and is relevant given the demise of the CLASS Act.


Lots of reports that the CLASS provisions will fall in any Senate-driven budget deal. Even if that doesn’t come to pass, CLASS is likely to go in any negotiations to move ahead on health reform. Most of the focus is on how CLASS influences CBOs score of deficit reduction, but I want to focus on the problem that CLASS is designed to address, the need for and cost of Long Term Care (LTC). Because we cannot repeal disability.

CLASS was an attempt to set up a self sustaining LTC insurance program that would provide a relatively small amount of money per day ($50-$75) that could be thought of as cover to help people live in their homes with disability and perhaps keep them out of a nursing home. It is a partial response to what many would say is a failure of the private insurance market to cover LTC.

I wrote a paper in Health Affairs (I believe ungated here via NIH depository) with colleagues from Duke and Boston University that was in the January 2010 Health Affairs that looked at the viability of using genetic markers as risk adjustors for private LTC insurance. I don’t want to focus on the genetic piece, but the reasons people don’t purchase private LTC insurance:

The policy big picture is this.

  • Families are the first line provider of LTC and this will always be the case. AARP estimates the value of such informal LTC to be $450 Billion per year.
  • Medicaid is the default payer of nursing home care in the U.S., the most expensive setting for LTC and pays around half of all such care. You could think of Medicaid as a universal NH insurance program with the deductible being your wealth. NH and LTC generally are where the big money is for Medicaid programs.
  • I suspect CLASS will eventually be goners. Do the repealers have any ideas about how to expand insurance coverage for LTC? We have had tax credits for LTC insurance for years….
  • The private LTC insurance market is small and there are many good reasons people don’t buy such coverage, including the fact that 3 in 10 of those surviving to age 65 die without using such care. Amongst the users, there are tremendous variations in length of use and the amount of money needed to finance the longest stay is probably $1. 5 Million. So, almost everyone is at risk of being unable to pay for the LTC they could need.
  • If ever there were a risk that called out for social insurance (broad spreading of premium in return for broad coverage) it is LTC. The policy answer is risk pooling and the private market has failed to do it. Medicaid certainly plays a crowd out role for NH coverage, but think through the 6 reasons for non purchase above; all of them must be addressed to move off of the status quo.

What is the answer? The population is aging….

Where did CLASS fit into LTC?

Long term care (LTC) is help and support to enable persons to deal with disability. Most think of nursing homes (NH) when they hear the phrase LTC, but only 1.6 Million persons live in a NH (see figure 1 below); the vast majority needing LTC live in community settings. Larger estimates of LTC are found when using a more expansive definition; AARP estimates that there are 30-38 Million persons (mostly family members) providing LTC to someone. The uncertainty in how many persons need and receive LTC underscores the fact that most do not live in institutions, making them difficult to count.

There are many inter-related ways to characterize LTC, all of which are important to understand what role CLASS could have played, and more importantly, to identify what needs to be done.

  • Disability progression. When disability onsets for the elderly, most persons initially need help in completing Instrumental Activities of Daily Living (IADL) such as shopping, paying bills, navigating health care visits, and cooking meals. Some have more severe limitations in Basic Activities of Daily Living (BADL), such as eating, bathing, dressing and using the toilet. A NH is best understood as a 24/7 provider of both BADL and IADL care. Disability progression can be more diverse in younger populations, some of whom need complete care due to a catastrophic event, and may need it for years or even decades.
  • Informal Care. Informal simply means unpaid, and most of this care is provided by family members, with spouses (87% of caregivers) being by far the most common provider followed by adult children. AARP has estimated that the cost of caregiving to be $350 Billion annually (based on their estimate of 30-38 Million informal caregivers), or more than twice the total cost of NH care.
  • Formal Care. Formal care is paid care, regardless of whether an individual or an insurer pays. The Kaiser Family Foundation (fig 2) shows the major reliance on out of pocket payment and Medicaid to finance formal LTC generally, and especially for care in a NH. Keep in mind that the figures below does not account for informal care, valued at $350 billion annually.

This was the default into which CLASS was supposed to enter, and which we have today. What role would CLASS have played in LTC?

  • CLASS benefits could be used for any LTC service, but were small ($50-$75/day), far less than the cost of a NH (several times that).
  • Benefits were best understood as either replacing some informal care hours and/or adding specialized, paid help for persons living with disability in the community.
  • It is possible that CLASS benefits could have delayed entry to a NH, allowing persons to remain in community settings longer.
  • CLASS would provide these low level benefits for an unlimited period; by contrast, private LTC insurance (which is rare) typically provides NH level benefits for a short period of time (1-3 years typically). Medicaid pays for NH care once eligible until death.

The goal of CLASS was to make planning for LTC a normal part of adulthood. Most persons do not plan at all, sometimes because they do not understand that Medicare pays for only limited amounts of LTC (home health), causing persons to rely on informal caregiving and defaulting into Medicaid to pay for the most expensive setting of care if they are impoverished (often due to paying LTC costs). CLASS wouldn’t have ended all of the LTC financing problems even if it was fully successful, but it would have contributed, and it would have been an example of forward looking policy in LTC. If the demise of CLASS is simply a political scalp it will be a missed opportunity to have a full discussion about how we will insure LTC.