Friday, October 14, 2011

Long Term Care Insurance, RIP

The Obama Administration made a late Friday announcement to finally pull the plug on the long term care part of the health care bill. This long term care plan was known as CLASS, for Community Living Assistance Services and Support. It was designed as a supplemental insurance plan, with people paying premiums during their younger years in return for support when disabled later.

The plan had fundamental economic flaws, deriving from adverse selection effects: the program to be financially sustainable had to have a lot of healthy premium payers and relatively few payees. Analysis suggested that would not happen, with the program instead attracting initially unhealthy patients who would receive benefits for too short a period to cover their costs. If premiums were increased, the adverse selection would only grow worse.

A good description of CLASS is given by the Kaiser Family Foundation here.

Most interesting is that the Congressional Budget Office (CBO) credited CLASS with reducing the Federal deficit by $70 billion over the 10 year period that was used to measure the financial effect of the health plan. How does that fit with a plan that is now recognized as financially unsustainable? Well, there is a 5 year vesting requirement, so over the first 10 years of the plan, more money comes in than goes out...but it all falls apart in the later years. The savings projected from CLASS helped the bill to gain votes and be passed. (Interesting that adverse selection would work so strongly even with the 5 year vesting. I would like to see some of the models that have been used to analyze the program.)

How many other parts of the health care bill were designed as poorly as CLASS? And how much were "savings" from such ideas relied on to get the bill passed? What would happen if CBO were to re-score the bill now?


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It's highly unlikely, since you're legally totally disabled, that you'll find ANY insurance company to sell you long term care coverage.
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