Will the CLASS Act Solve Our Long-term Care Crisis?
By Karen R. Palmersheim, Locke Lord Bissell & Liddell LLP, Los Angeles, CA
The Patient Protection and Affordable Care Act (“PPACA”) signed into law on March 23, 2010 created a national, voluntary, long-term care insurance program through payroll deduction for active employees through the Community Living Assistance Services and Supports Act -- the CLASS Act. The purpose of the CLASS Act is to assist individuals with functional limitations with maintaining their personal and financial independence to enable them to continue living at home and avoid institutionalized living. The CLASS Act is intended to achieve this goal through providing financial resources to foster independence and to help alleviate the burdens on family caregivers.
Specifically, the CLASS Act provides a cash benefit to individuals impaired with performing some or all of the activities of daily living (“ADL”) which are defined as eating, toileting, transferring, bathing, dressing and continence. Cash benefits are available under the CLASS Act where: (1) an individual is determined by a licensed health care practitioner to be unable to perform at least two or three ADLs without substantial assistance for a continuous period of more than 90 days; (2) the individual needs substantial supervision to protect against threats to health and safety due to a substantial cognitive impairment; or (3) as otherwise determined by the Secretary of the Department of Health and Human Services (“HHS”). The HHS Secretary is required to establish regulations for the CLASS benefit plan by October 1, 2012.
There is a Significant Need for Long-Term Care
There is a significant need for long-term care assistance, which will only continue to grow as the Baby Boomer population ages. About 70 percent of individuals over the age of 65 will need long-term care services at some point in their lifetime. About 9 million Americans over the age of 65 need long-term care services, and that number is expected to rise to 12 million by 2020. In addition to the growing aging population, there are also millions who require long-term care due to a disability, disease or injury from a catastrophic event. While many consider long-term care as a need for the elderly, 40 percent of those who need long-term care are adults between the ages of 18 to 64.
Despite the need for long-term care assistance, most Americans do not have private long-term care insurance, which pays for only a fraction of the 194.2 billion dollars spent on long-term care in 2007 -- about 7 percent. The other payors of long-term care in 2007 were: Medicaid (49 percent), Medicare (19 percent), “out-of-pocket” (19 percent), “other” private (3 percent) and “other” public (3 percent). While Medicare pays 19 percent of long-term care costs, Medicare’s payment for skilled nursing facility, hospice and home care is limited. For example, Medicare will pay a portion of skilled nursing facility costs for only 100 days, and only if certain conditions are met. Further, Medicare’s focus is on payment for goods and services that are “medically necessary” and not on whether such goods and services may be essential to an individual’s ability to independently live at home. While Medicaid may be a source of payment for long-term care needs, it is neither a viable nor desirable option for individuals who have assets and do not want to use up their personal resources to qualify for Medicaid. In most states, Medicaid beneficiaries can have no more than $2,000 in assets, excluding their homes. Further, Medicaid emphasizes payment for institutional services rather than non-medical services which help individuals retain their independence at home (rather than becoming institutionalized in the first place). In 2006, the United States average percentage of Medicaid dollars going towards home and community based services was only 25 percent.
How CLASS Benefits May Be Used
Unlike Medicare and Medicaid, which provide payment for specific medical services and products, the CLASS Act provides for cash benefits which the individual may use as he or she sees fit to help with that individual’s personal needs. The amounts of the daily cash benefit that beneficiaries are eligible to receive are to be determined by the HHS Secretary, but shall be no less than $50 per day, subject to consumer price index increases. The Congressional Budget Office (“CBO”) assumed that the HHS Secretary would establish an average daily benefit of $75, adjusted according to the severity of the individual’s ADL impairment. For example, an individual with an impairment of two ADLs may receive a $50 per day benefit, but an individual with an impairment of four ADLs may receive a $100 per day benefit. While the CLASS Act requires that the daily benefit be no less than $50 per day, the actual benefit that will be available will be subject to determination by the HHS Secretary, based on the premiums received through the program and administrative costs.
While the individual may choose how to spend the daily benefit, the CLASS Act has certain guidelines for spending. The beneficiary must use the benefit “to purchase nonmedical services and supports that the beneficiary needs to maintain his or her independence at home or in another residential setting of their [sic] choice in the community.” Examples of permissible uses are home modifications, assistive technology, accessible transportation, homemaker services, respite care, personal assistance services, home care aids and nursing support. To ensure that benefits are spent within these guidelines, the HHS Secretary may demand that a beneficiary provide records of expenditures attributable to the aggregate cash benefit received by the beneficiary during the preceding year. However, the CLASS Act specifically provides that benefits may be used to compensate a family caregiver providing community living assistance services and supports to a beneficiary. Without further regulation, this could lead to an end run around the spending guidelines because a beneficiary could report that the benefits were used to pay a spouse or other family caregiver where minimal assistance was actually provided.
The CLASS Act’s Impact on the Long-Term Care Crisis is Uncertain
While enactment of the CLASS Act was favored by long-term care agencies, the Act’s ability to have any significant impact on the provision of long-term care services is uncertain. It is unknown how many will choose to enroll in the program. Employers are not required to administer the Act’s long-term care insurance plan for their employees, and some may not to avoid the administrative burdens. Further, employees can choose to opt out of the voluntary program, which is dependent on the participation of a sufficient amount of healthy individuals for its viability.
Many employees may not be willing to pay the estimated $123 per month premium, either because of the cost or concern as to whether the program will remain solvent by the time the benefits are needed. While the Act requires that the Secretary establish premiums to ensure that the program will remain solvent for 75 years, if an insufficient number of individuals enroll, or claims are higher than expected, premiums will be greater than the $123 per month estimated by the CBO. While no underwriting may be used to determine the premium (which will be set according to age and enrollment history), some may be discouraged from enrolling since an individual’s right to benefits will not vest until premiums are paid for five years, and the individual must be working for three of those five years. Further, there are penalties if an individual later enrolls or re-enrolls after allowing enrollment to lapse more than 90 days.
Receipt of CLASS benefits will not affect an individual’s ability to receive other benefits available under state or federal law, including Medicare, Medicaid, Veteran, low-income housing or nutrition benefits. However, a beneficiary could lose the right to receive CLASS benefits under certain circumstances. For instance, if a beneficiary is enrolled in Medicaid and is institutionalized in a hospital, nursing facility or other care institution, 95 percent of the daily benefit must be applied toward the facility’s costs and the beneficiary may retain only 5 percent of the daily benefit. If the beneficiary is enrolled in Medicaid but is receiving home and community based services, 50 percent of the daily benefit must be applied toward the cost to the State of providing such assistance if the State programs meet certain conditions, while the beneficiary may retain the other 50 percent of the daily benefit. If a beneficiary is enrolled under Medicaid for PACE program services, the State may also retain 50 percent of the beneficiary’s daily benefit.
Others may be discouraged from enrolling since the CLASS benefits will be insufficient to pay for long-term care needs. The CLASS was not intended to provide full long-term care coverage. Instead, the benefits available under the Act are only intended to supplement other sources of funding, as costs for long-term care far exceeds the $50 per day minimum benefit under the Act. The HHS provides the following data on the average cost of services in 2009:
- $198 per day for a semi-private nursing home room
- $219 per day for a private nursing home room
- $3,131 per month for care in an assisted living facility
- $21 per hour for a home health aid
- $19 per hour for homemaker services and
- $67 per day for an adult day care center
While $50 a day may not be enough to pay for a nursing home room, CLASS benefits should help some people avoid institutional care through financial support to maintain independence – which is what the Act was intended to do.
The CLASS Act was not designed to solve the problem of how Americans are going to pay for long-term care in the future, which will continue to be an open question. Its enactment could result in discouraging individuals from buying private long-term care insurance if they believe that Medicare, Medicaid, or CLASS benefits will be enough to take care of their long-term care needs. Moreover, private long-term care insurance (as well as enrollment in the CLASS program itself) may not be attractive to younger adults who do not believe they need it, as well as to older adults who cannot afford it. While it is not likely the CLASS Act by itself will have a significant impact on solving the upcoming long-term care crisis as the population continues to age, it will hopefully focus attention on the growing need for long-term care and can serve as a starting point for more comprehensive solutions in the future.
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