Kaiser Family Foundation Briefing on Long-term Care
February, 7, 2011
Remarks as prepared for delivery
Thank you for that nice introduction. It’s great to be with you today.
In last month’s Health Affairs, some of you may have read the story of a New Jersey man named Michael Ogg. Fourteen years ago, when he was 42, Michael was diagnosed with multiple sclerosis. Since then, he has lost movement in his legs and left arm. His neck muscles have weakened so that he needs his wheel chair to keep his head upright. He has lost the ability to control his bladder and has to urinate through a catheter into a bag that is strapped to his thigh.
Despite these challenges, Michael lives alone in his own home nearby his two daughters. He goes to the grocery store and cooks for himself. He audits courses at a nearby university. He is an advocate for people with disabilities in his neighborhood.
Michael can live independently, as he strongly prefers to do, because he has part-time personal care assistants who help with the daily tasks he cannot do on his own. He pays for these assistants with the long-term care insurance he gets through his former employer. But his policy will run out soon, forcing him to rely on Medicaid for his care. If it can’t cover the services he needs, his worst fears will come true and he will be forced out of his home.
With every year that passes, more Americans will face the same choices as Michael. Today, approximately 10 million Americans need long-term services and supports, ranging from having an aide visit for a few hours a week to living in a nursing home with around-the-clock care. As America ages, that number is rising steadily. By 2020, it’s expected that 15 million Americans will need some kind of long-term care.
Yet today, people who want to plan for the possibility that they could be in a situation like Michael’s often have few good options. You can pay out of pocket, but at $75,000 a year or more for a nursing home or about $18,000 a year for 20 hours a week of home care, money can run out fast. You can purchase private long-term care insurance, but some insurers have stopped offering these plans and the price puts it out of reach for many Americans. If you qualify for Medicaid, you can get coverage that way, but many people aren’t eligible until virtually all their savings are exhausted.
Americans need better choices. We know that one out of six people who reach the age of 65 will spend more than $100,000 on long-term care. If nothing changes, we will see more and more of them either forced into a nursing home against their wishes or forced to clean out their savings to afford the long-term services and supports they need.
That’s where the Community Living Assistance Services and Supports or CLASS program comes in. President Obama and I were both long-time supporters of this program before it was included in the Affordable Care Act. And we continue to believe it has the potential to make a huge difference in the lives of working families. As Michael Ogg put it, “It’s too late for me, but…CLASS…could provide significant long-term care benefits in the future for people in a situation like mine.”
That said, President Obama and I have also recognized that the CLASS statute wasn’t perfect. Many of the changes proposed to the Senate health reform bill that would have improved the CLASS program’s financial stability were not included in the final legislation. So it wasn’t surprising that the President’s Fiscal Commission identified these same unresolved issues in December and recommended that we “reform or repeal CLASS.”
But it’s important to remember that the law already provides plenty of flexibility to make sure CLASS is successful. And today, I can tell you that we are committed to using that authority to make sure this program meets people’s needs while remaining fiscally sound.
As we do this, I want to make one point very clear. The law says clearly that the program must be able to pay for benefits over the long-term with the premiums it takes in. No taxpayer dollars will be used to pay for CLASS benefits. This is non-negotiable, and it has been the starting point for every conversation we’ve had about this program.
Moving forward, we’ve also been guided by two other key principles that are at the heart of the CLASS statute.
First, consumers must be able to direct their own services. This program is about giving people more control over their own care, and we will make sure that freedom is not taken away.
Second, there will be no underwriting of the kind found in private insurance. CLASS should be open to any American who meets the requirements, regardless of their health history.
With these principles in mind, my staff and I have spent the last ten months studying this new program. We’ve discussed CLASS with some of its strongest supporters and some of its toughest critics. We’ve reviewed every major study of CLASS and discussed these studies with leading actuaries and economists. We’ve conducted our own research and looked at how CLASS fits with other long-term insurance options. Most importantly, we’ve spoken to Americans across the country about what kind of program would give them peace of mind against the potentially devastating costs of long-term services and supports.
These discussions have given us a clear picture of where the CLASS program needs to be strengthened in order to give enrollees the security they need while remaining on a stable financial path.
In particular, we realized we needed to focus on several additional areas, each of which we’re currently exploring.
Like all insurance programs, CLASS needs to be able to attract a broad base of enrollees. Private insurance solves this problem with underwriting, charging higher rates to those more likely to receive significant benefits and lower rates to others.
Since that is not an option for CLASS, one question that we’ve heard over and over again is: how will CLASS successfully spread financial risk to keep premiums down while maintaining benefits? As a former Insurance Commissioner, I understand how important it is to have a good answer to that question.
The first step we can take is to raise awareness about this program. We know that many people don’t even consider needing long-term services or supports in the future. Others prefer not to think about the chance that they’ll someday have to rely on others for basic tasks like getting dressed and washing themselves. So we will work aggressively to make sure people know about this new option.
Next, we want to make sure this program is appealing to employers and their employees. We’re looking at ways to use information technology to make it as easy as possible to enroll and pay your premiums. For example, we could calculate premiums for people interested in joining the CLASS program so that employers don’t have to. And we’re studying other ways we can make the program more flexible for employers who want to partner with us.
Another option would be to change the employment and earnings requirements for the program. The CLASS program was designed to protect the workers of today against future needs. That’s why it included a requirement that people earn a certain amount of money in order to participate.
But if that standard is set too low, we may have too many enrollees who will quickly claim benefits thereby threatening CLASS’s financial viability. That’s not the intent of this program, so we will look closely to make sure we’ve picked the right cut-off.
Finally, the program contains loopholes that could allow people to skip premium payments and then re-enroll in the program without paying any penalty. So we’re looking at ways to close these loopholes so that all enrollees pay their fair share.
If we can spread risk across a broad base of enrollees, we will make CLASS much stronger. But we also need to make sure we keep a balance between premiums and benefits.
As currently written, the statute keeps premiums flat while calling for CLASS benefits to rise with inflation. That gives us two options. We could set the initial premiums very high, making it difficult to attract a broad base of enrollees. Or we could set lower initial premiums, and watch them quickly be eclipsed by rising benefits. Neither of these options is appealing.
Fortunately, the law provides a lot of discretion in structuring premiums to keep CLASS solvent. That’s why we’re currently looking at options for indexing premiums so they would rise along with benefits. And because we know that many Americans have had their confidence shaken by large premium hikes over the last few years, especially in the long-term care insurance market, this indexing system would have to be completely transparent. That way, people could plan ahead without being surprised by sudden large rate increases.
The last area in which we can strengthen the program is by tailoring benefits more closely to people’s individual needs and preferences. Long-term care comes in many shapes and sizes. One person might be able to live on their own with just a few hours a week of assistance with bathing, toileting, and dressing on their own. Another might prefer an assisted living facility. A third might need the around-the-clock assistance you can only get at a nursing home.
Given these differences, we’re looking at ways to make the program appealing for Americans with a wide range of long-term care needs. A CLASS program that does not take a “one-size-fits-all” approach will not only serve people better, it will also be attractive to larger number of people.
These are our goals. They are tough goals, which will require us to make difficult choices today to put the program on firm footing for years to come. But they are necessary if we want Americans to enjoy the benefits of a strong CLASS program. And I believe they are achievable if we use the flexibility and authority the law has given us effectively. As we begin to design specific features of the program, we will have even more ideas about how to make CLASS stronger.
In the years to come, nearly every American family will have a grandmother or a father or a sister or a son who needs daily help because of a disability. They deserve to have the choice of a program that will allow them to prepare for the chance that they someday might need long-term services and supports in order to live the life they want.
It would be irresponsible to ignore the concerns about the CLASS program’s long-term sustainability in its current form. But it would be unconscionable to ignore the likelihood that without a CLASS Act, countless Americans will have to clear out their savings or leave their homes and loved ones in order to get the services and supports they need.
There was nothing Michael Ogg could do about getting multiple sclerosis. But if the CLASS program had existed, Michael could have taken steps to make sure that if something did happen, he’d have the resources to keep living the life he wanted. As more Americans come to depend on long-term services and supports, that’s a freedom we should fight to protect.
There is still work to be done. But the President and I are determined to give Americans the choice of a financially strong CLASS program. And that’s what this Administration and our department will work to do in the coming months and years.