The (CLASS) Act: It Looks Like a Duck and Quacks Like a Duck, but…

For those of you who have not had the opportunity to pick up a copy of the 2,074-page ObamaCare law (H.R. 3590) for some light reading, the National Center for Policy Analysis (NCPA) has published a short, two-page analysis on the new long-term care entitlement program discussed in the law (see “The New Long-Term Care Entitlement“).

Known as the Community Living Assistance Services and Supports (CLASS) Act, this government-run program looks like long-term care insurance at first: participants pay monthly premiums, which the government invests and then uses to pay long-term care benefits for participants down the road.  But truth be told, it violates the principles of sound insurance:  no investment of premiums and no underwriting for health conditions, leaving future taxpayers footing the bill.

If one were to peruse the CLASS legislation, it would appear that taxpayers are off the hook.  Consider the following passages from H.R. 3590:

“No taxpayer funds shall be used for payment of  benefits under a CLASS Independent Benefit Plan (H.R. 3590  pg.1972),”

and

“One-hundred percent of the premiums collected…” for the CLASS program will be deposited into the CLASS Independence Fund (H.R. 3590  pg. 1946).

Though technically true, these claims are deceptive.  They give the impression that CLASS premium dollars will be invested, as would be typically done by a private insurer and that tax dollars will never pay fo

r CLASS benefits.

ObamaCare doesn’t explicitly outline how CLASS dollars will be invested.  Rather, it points to regulations outlined by the Social Security Act, which appeal to the United States Code for further clarification.  Apparently, the authors of ObamaCare prominently positioned the details they wanted to draw attention to while constructing a scavenger hunt to the facts they believed would be less popular.  Upon completing this scavenger hunt, the more serious reader will find that:

CLASS premium dollars may only be invested in “interest-bearing obligations of the United States,” “in obligations guaranteed as to both principal and interest by the United States,” or in U.S. “public-debt obligations” (H.R. 3590  pg. 1965) and [subsection (c) of Section 1841 of the Social Security Act (42 U.S.C. 1395t)].

Consequently, CLASS Act premium dollars will be allowed to flow into the U.S. Treasury’s general revenue fund, permitting CLASS dollars to pay for things like Social Security benefits, the health care overhaul and any other program

congress wishes to implement.

Additionally, the government (i.e. taxpayers) will guarantee all CLASS Act investments, ensuring that taxpayer dollars will be used to buy back the investment obligations held by the CLASS Independence Fund.  When CLASS expenditures exceed revenues, as the Congressional Budget Office predicts will happen in about 20 years, benefit promises will be guaranteed by tax dollars.

Bottom line:  It may look like a duck and quack like a duck, but in reality, CLASS is a goose.

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Comments (3)

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  1. The CLASS Act’s $50 per day “average benefit” will only cover a small portion of the $75,000+ per year most Americans pay for in-home care. Most people who want to protect their savings will still need to purchase long-term care insurance.

    One of the biggest problems we face is that most Americans still think that Medicare or their medical insurance covers the cost of long term care.

    The CLASS Act addresses this problem by making a very clear statement: You have to pay for your own long term care. You either have to pay for your own long term care by using your savings, the $50 per day CLASS Act benefit, long term care insurance, or a combination of these.

    Most of the ten million Americans who own long term care insurance, own it because they’ve seen friends or family have to spend down their assets before qualifying for Medicaid. The CLASS Act will help alert the rest of the country to the fact that they need to financially plan for their future long term care needs.

    There are 2 reasons the projected premiums for the CLASS Act are much higher than a comparable long term care insurance policy.

    1) Anyone who is working (even just part-time) can enroll in the CLASS Act regardless of their health history. Enrollees with severe diabetes or crippling arthritis will pay the same amount for the CLASS Act benefit as those who are in perfect health.

    2) Those who earn less than the federal poverty level will be automatically enrolled in the CLASS Act for only $5 per month (unless they opt-out). Their premiums are being subsidized by the rest of the enrollees.

    Many of the leading long-term care insurance policies today can pay family caregivers. And many even offer a refund of premiums paid upon death.

    Scott A. Olson
    http://www.LTCInsuranceShopper.com

  2. Don Levit says:

    Biff:
    Thanks for writing this article.
    CLASS is basically the same as Social Security (and therefore, Medicare).
    Social Security also was to be self-supporting, with no general revenues being expended.
    From the Committee on Economic Security:
    “Taxes are collected as are other internal revenues and are not allocated as was proposed to an Old-Age Fund, but are merged with the general funds of the Government in the Treasury.”
    Go to: http://www.ssa.gov/history/reports/ces/cesbookc10.html.
    From the Health Care Financing Review, 10-2005:
    “Cash income from earmmarked sources (payroll taxes) goes into the Treasury’s general fund. The income is then CREDITED to the trust fund.
    THE ACTUAL CASH RECEIPTS are expended from the general fund for whatever purpose arises.”
    So, the payroll taxes are credited to the trust fund, while the actual dollars are in the general fund.
    Go to: http://www.cms.hhs.gov
    put in “Health Care Financing Review, 10-2005.”
    Don Levit

  3. Devon Herrick says:

    The whole program is unsustainable. People who can pass underwriting can get better coverage in the private market. Those who cannot get private coverage will apply for CLASS ACT plans. By default, the only people who will take advantage of the CLASS ACT plans are those who are most apt to need long term care. Enrollees only have to be employed for three years while making payments. It’s easy to see how someone who is slipping into disability could conceivably work three years (while paying premiums), make payments for two more years (out of savings) and then apply for benefits. Doing the math: someone could draw $25,000 per year in benefits for the next 20 years in return for paying $7,500 in premiums. Obviously, all enrollees cannot do that and the program stay solvent. Since the only people who have an incentive to enroll are those most apt to need care, the program will have to raise premiums or lower benefits.