Federal officials wrestle with long-term insurance under health reform

WASHINGTON–Top federal health officials are designing a new insurance program aimed at increasing the health care options for people with disabilities–and helping them avoid the financial collapse that often comes with severe medical crises.

If successful, the program could also provide much-needed fiscal relief to states like Connecticut, where the Medicaid program, which pays for long-term care for the poor and disabled, is a significant element of the busted budget.

Proponents say the new insurance initiative, created under the federal health reform law, is potentially transformative. But critics say it is seriously flawed and will almost certainly fail. And even as interest groups line up to influence the parameters of the program–the premiums, benefits, and other components–Republicans in Congress have targeted it for repeal.

At issue is the so-called CLASS Act, short for Community Living Assistance Services and Supports.

It seeks to address everyone’s worst medical nightmare: being diagnosed with a debilitating, chronic condition that regular private insurance will not cover over the long term.

Whether it’s multiple sclerosis, Alzheimer’s disease, or a stroke that limits mobility, such conditions can be financially devastating.

“How does the prospect of living in a nursing home at age 50 and beyond after a stroke sound to you?” asked William Minnix, president of LeadingAge, an advocacy group that represents non-profit nursing homes, assisted living residences, and other facilities. “And then after you deplete your assets and sell your house, to leave nothing to your children?”

More and more Americans are facing this desperate situation. Currently there are 10 million Americans who require long-term support services.

“As America ages, that number is steadily rising,” Health and Human Services Secretary Kathleen Sebelius said at a forum on long-term care on Monday.

“By 2020, it’s expected 15 million Americans will need some kind of long-term care services,” she said. “We know that 1 of every 6 who reach the age of 65 will spend more than $100,000 a year on long-term care.”

And yet right now, Sebelius added, those who want to plan for those needs have very few options.

Patients can pay out of pocket, but nursing homes costs about $75,000 a year, and home health aides run an average of $18 an hour. Individuals can purchase private long-term care insurance, but premiums are expensive and few insurance companies even offer such policies anymore.

The third option, which is all-too-typical for many middle-class families, is that they burn through their personal savings until almost nothing is left. Then they’re poor enough to qualify for Medicaid, and the cost of their care is picked up jointly by the state and federal government.

“We have a looming needs situation,” Sebelius said at Monday’s forum, sponsored by the Kaiser Family Foundation. “If nothing changes, we’ll see more and more of [these patients] either forced into a dependent living situation against their wishes or forced to clear out their savings to afford the services and supports they need to live independently.”

Neither is sustainable. Medicaid now spends one-third of its budget–more than $100 billion annually–on long-term care services. That price tag is a particularly tough sell in this current fiscal climate, as governors across the country try to close gaping budget holes.

Enter the CLASS Act, which proponents tout as a revolutionary initiative and detractors say is another federal entitlement in the making.

Under the CLASS Act, which was part of health reform, HHS is now working to establish a federal long-term insurance option-a voluntary program open to working adults, who will pay premiums set by HHS. If they become disabled, the program will pay out a small daily benefit, based on their needs, to cover support services that will allow them to stay in their community.

With lower premiums than a private insurance plan, proponents argue, it will make long-term insurance more attractive to the sick and healthy alike. The benefits will be more flexible than Medicaid, because the consumer controls the spending and can therefore opt for home health services rather moving into a nursing home.

“It’s a long overdue national mechanism that we can use to plan for the future,” said Mercedes Witowsky, a New Jersey advocate for the disabled whose daughter had a massive stroke when she was 16 years old.

Witowsky’s private insurance covered her daughter’s hospital care and some rehabilitation immediately after her stroke. But it would not cover the long-term expenses of having a home health aide help her get dressed, bathed, and through each day. Now 21 and in college, her daughter relies on Medicaid for that care.

Like many, Witowsky, who also spoke at Monday’s Kaiser forum, never imagined she would need long-term health insurance for herself, let alone for her teenage daughter. Only about 7 million Americans currently have private long-term care insurance.

“They either don’t want to think about it or they think ‘I’ve got insurance’ or ‘I’ve got Medicare’,” Minnix said. “People don’t realize the limits of current coverage.”

Medicare doesn’t cover long-term nursing home services. And private insurance usually doesn’t either. Nor does either generally pay for in-home care to help a disabled individual live independently. Even Medicaid is seriously restrictive in its coverage of long-term care.

Minnix calls the CLASS program “one of the most revolutionary” elements of health reform. “More and more families are recognizing that this could happen to anybody and therefore it’s something that’s logical to insure against,” he said.

But critics say the program is poorly designed and will end up costing taxpayers billions of dollars.

“Design problem No. 1 is it will be most attractive to those who need the benefit,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and now president of the conservative American Action Network Forum.

If only the sick or disabled buy into the programs, he said, the premiums will not cover the costs of care. He’s also worried that HHS will set the premiums too low to entice participation, therefore shortchanging the insurance fund before it even gets going.

And finally, he said that as participants begin to realize how small the benefits are, Congress “will be tempted to pump up” the program and create a whopping new entitlement program.

Holtz-Eakin doesn’t dispute that there’s a problem. But he said that what’s needed is a more robust private long-term insurance market. Right now, he argues, Medicaid “crowds out” private competitors.

He conceded that there are no easy solutions and the problem is only going to become more acute.

“The bulk of long term care services are donated at this point, typically by family members, mostly woman,” he noted. “And given the demographics–that more elderly are living longer and more women are working–this problem is going to get worse before it gets better.”

He and others are urging Republicans in Congress to target the CLASS Act for repeal, and there are already bills in the legislative hopper to do so.

Howard Gleckman, a resident fellow at the Urban Institute and author of the book, “Caring for Our Parents,” agrees that the CLASS program is not well crafted.

“I worry that relatively few healthy people will enroll, and if that happens that will drive up the premiums,” he said, creating a “death spiral” where only people who know they need it will purchase it, making it “a system that’s entirely unaffordable.”

But repealing the measure is not the way to go, he said, “because then what you are left with is the Medicaid system, which is unsustainable.”

He said that while flawed, the program is a good first step. And if done correctly and improved upon, it will help solve the looming long-term care crisis. For example, he said, if there are incentives for employers to get their workers enrolled, that would be a good way to expand the insurance pool.

In her remarks Monday, Sebelius acknowledged those concerns and said CLASS is “far from perfect.” But as HHS officials begin to set up the program, she said, the agency will use the “ample flexibility” in the law to make sure it’s successful and solvent.

If they don’t, she said, “countless Americans will have to clean out their savings” to get the care they need.