CLASS Act vs. LTC insurance: What’s best for LTC providers?

Long-term care (LTC) providers desperately need a better source of reimbursement. Government dominates long-term care financing, but pays too little to ensure quality care and it mostly funds services consumers would rather avoid. Medicaid has an “institutional bias” that shorts assisted living and home care while paying nursing homes less than the cost of providing the care.1

Although Medicare reimbursements are more generous, they are narrowly restricted to skilled care whether that care is provided at home or in a nursing facility. Meanwhile, Medicare is severely vulnerable to future cuts.

If LTC providers cannot rely on government to pay for their services, which option is more likely to offer a solution: the new Community Living Assistance Services and Supports Act (CLASS Act) or private long-term care insurance?

The CLASS Act is part of the health reform law signed by President Obama on March 23, 2010. CLASS is a federally mandated program in which employed people who do not opt out may prepay for cash LTC benefits without underwriting and with their “premiums,” benefits, and benefit triggers determined solely by the Secretary of Health and Human Services based on the program’s future actuarial solvency.

Reports by the American Academy of Actuaries; Milliman, Inc., an actuarial firm; and the chief actuary of the Centers for Medicare & Medicaid Services (CMS) have all concluded that CLASS would have to charge exorbitant premiums, offer minimal benefits, or otherwise dissolve into actuarial insolvency.

For example, CMS Chief Actuary Richard Foster warned on April 22, 2010:

In general, voluntary, unsubsidized, and non-underwritten insurance programs such as CLASS face a significant risk of failure as a result of adverse selection by participants. Individuals with health problems or who anticipate a greater risk of functional limitation would be more likely to participate than those in better-than-average health. Setting the premium at a rate sufficient to cover the costs for such a group further discourages persons in better health from participating, which may lead to further premium increases. This effect has been termed the “classic assessment spiral” or “insurance death spiral.” 2

Foster expects that only 2% of eligible employees will take up CLASS. On the other hand, LTC insurance has been tested in the private marketplace for more than 30 years. It pays market rates for the kinds of services consumers prefer (home care, assisted living, and the best nursing home care when needed). Private LTC insurance has no risk of insolvency because of stringent state insurance regulations and “guaranty funds.”

The table below shows the fundamental differences between private LTC insurance and the CLASS Act.

A comparison of LTC insurance and the CLASS Act

LTC Insurance


Collects and invests hard-dollar reserves

Relies on low-interest government IOUs

Underwritten to price risk and protect insured

No underwriting, so adverse selection

Premiums based on past experience

Premiums subject to future claims

Regulated by state insurance commissions

HHS Secretary decides everything

Contract enforceable in a court of law

“Entitlement” at whim of Congress/President


Compulsory (opt-out allowed)

Average 90-day waiting period

Five-year waiting period

Available to retirees

Available only to active employees

Well then, if private LTC insurance is so great, why have less than 10% of American consumers purchased it?

Simple. Government has paid for the vast majority of all expensive long-term care since 1965. Easy access to Medicaid-financed long-term care after the insurable event occurs has anesthetized the American public to LTC risk and cost. Most people don’t know who pays for it and they don’t care. They’ve had that luxury because government has always picked up most of the cost for LTC, while protecting beneficiaries’ biggest assets. Medicaid, for example, exempts up to $750,000 of home equity.

Unfortunately, the CLASS Act will only add to the public’s sense of complacency and entitlement regarding long-term care. The act holds out a false hope for providers that reimbursement help is on the way. I predict CLASS will never pay a claim either because it is repealed when political sanity returns or because the federal government cannot afford to repay the Treasury bonds in the program’s empty “trust fund.”

What should we do instead? Give Medicaid back to the needy. Target its scarce public benefits to those who need them most. Use the savings to incentivize responsible LTC financing through private payments from asset spend-down, reverse mortgages, and private long-term care insurance.

This solution is not complicated or difficult. It will come either from political will or as a result of the collapse of the status quo. The former is unlikely. The latter is inevitable. Private insurance will outCLASS government in the end.

Stephen Moses is president of the Center for Long-Term Care Reform.

For more information, call (206) 283-7036, e-mail, or visit To send your comments to the editor, e-mail


  1. A Report on Shortfalls in Medicaid Funding for Nursing Home Care. American Health Care Association, cited April 23, 2010.
  2. Estimated Financial Effects of the Patient Protection and Affordable Care Act. Centers for Medicare & Medicaid Services memo.

Long-Term Living 2010 July;59(7):32-35

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