The Obama Administration has recently come to the conclusion that the CLASS Act, a minor stand-alone component of the Affordable Care Act, is unsustainable in its current form. The decision to stop implementation of the CLASS Act is a decision to prevent a voluntary, government-coordinated insurance program to cover community services for long term care. However, the administration continues to work under the belief that CLASS can resume.
The total market for long term care covers 10.3 million individuals at a cost of $178 billion (40 percent covered by Medicaid, 23 percent Medicare, 22 percent out-of-pocket, and only 9 percent covered by private insurance). Nursing homes account for 70 percent of total long term care costs and elderly (65+) patients make up 87 percent of that population.
Medicaid, being the largest payer for long term care insurance, represents a significant drain on state budgets. Long term care users account for only 6 percent of the Medicaid population but nearly half of the costs. And since two-thirds of the long term care population is also enrolled Medicare, Congress could easily aid the states and help seniors by shifting long term care coverage from Medicaid to Medicare.
The underlying problem is that the private market for long term care insurance is extremely small; only 10 percent of the elderly have a private long term care insurance plan. Traditionally this is because policies have been exorbitantly expensive. However, a simple yet elegant solution, has surfaced from within the insurance industry.
Hybrid insurance policies – combining life insurance with long term care insurance – make coverage more affordable. These hybrid policies allow Americans to extract income from the life insurance component to cover current long term care needs. Sales of these hybrid policies have exploded while the traditional market for solo long term care insurance have dwindled.
Instead of trying to revive the CLASS Act, the Obama administration should simply push for two changes that can improve the state of long term care for the nation. First, promote the uptake of hybrid long term care-life insurance policies in the private market. Secondly, shift long term care coverage to those who need it most, America’s Medicare beneficiaries.
Update: Thanks to Harold Pollack, I’ve learned that CLASS has been officially closed. That is, repealed.