What Is 'CLASS'? And Will It Work?

Long-term care is the major uninsured expense for most retirees. Neither private health insurance nor Medicare covers long-term care expenses, although Medicare provides for care in a skilled nursing facility for up to 100 days following hospitalization. Longterm care insurance is available in the private market, but few people purchase plans due to high premiums and limited benefits. As a result, many turn to family members for care or are forced to deplete their resources to qualify for Medicaid to pay for nursing home care. Although not yet commonly known to the public, the new health care reform legislation establishes a voluntary, long-term care insurance program known as the Community Living Assistance Services and Supports, or CLASS. CLASS is designed to overcome the major problems in the existing system, which forces families of those needing long-term care to impoverish themselves, places an enormous burden on relatives caring for loved ones, and supports institutionalization over home care. This brief explores the potential for CLASS to solve the nation’s long-term care challenge. This brief proceeds as follows. The first section discusses how families currently cover the burden of long-term care. The second section describes CLASS and compares it to private insurance. The third section identifies adverse selection – that is, participation mainly by the less healthy – as the major stumbling block facing CLASS. The fourth section presents a simple actuarial model to demonstrate the sensitivity of the premiums to the health and age distribution of participants. The final section concludes that the program faces enormous challenges, but a number of programmatic changes and a major advertising campaign could improve its chances of success. Without adjustments, adverse selection will create a death spiral of rising premiums and declining participation.