Written by Alyene Senger
Though the government’s entitlement spending is still spiraling out of control, taxpayers have finally caught a break: The recently passed “fiscal cliff” deal included the repeal of one of Obamacare’s worst provisions, the Community Living Assistance Services and Supports (CLASS) Act.
The CLASS Act was a new entitlement program included in Obamacare. CLASS was created as a voluntary, government-run long-term care (LTC) program. It was supposed to be fully funded from the premiums paid by its beneficiaries and require no federal taxpayer dollars.
But the program was so poorly designed—much like the rest of Obamacare—that even the Obama Administration had to admit it wouldn’t work.
A letter to Congress in 2011 from a CLASS administrator warned of extreme adverse selection in the program, stating that “if healthy purchasers are not attracted to the CLASS benefit package, then premiums will increase, which will make it even more unattractive to purchasers who could also obtain policies in the private market. This imbalance in the beneficiary pool would cause the program to quickly collapse.”
Many experts warned that the program would require either a mandate to participate or a permanent taxpayer bailout.
On top of its budgetary concerns, Heritage research has laid out why the government-run CLASS program would make long-term care insurance even worse than what’s currently available:
The average monthly premium for private LTC insurance in 2007–2008 was $184. This is about 25 percent less than the estimated average premium of $240 for the CLASS program as calculated by the CMS [Centers for Medicare and Medicaid Services] Office of the Actuary. However, the plans are not direct comparisons. The CMS assumes an average daily benefit of $50 per day for an unlimited period. By comparison, most private offerings pay benefits of $120 to $400 per day, averaging $165 per day.
CLASS was a bad deal for both taxpayers (who would likely have had to bail out the program) and beneficiaries (who would be better served by choosing among private options). It would have resulted in another inefficient government entitlement that provided benefits better served by the private sector.
While the U.S. does have a problem regarding people not being properly prepared for long-term care costs, CLASS was not the solution. Taxpayers can take comfort that this entitlement fiasco has been averted.
Source: The Heritage Foundation
Alyene Senger is Research Assistant in the Center for Health Policy Studies at The Heritage Foundation.