Putting Long-Term Care into a Death Spiral

Posted by Stephen Moses in Long-term care on Nov 19th, 2009 | no responses

Surely proponents of the government-run LTC financing plan will celebrate its inclusion in the Senate’s health reform bill. See “Long-Term Care Plan to Be in Bill” in the Wall Street Journal here if you subscribe online or on page A-4 in the print edition.

But hold off on the celebration because the Chief Actuary at the Centers for Medicare and Medicaid Services (CMS) says CLASS is a dud. See “CMS Actuary: CLASS Act Would Not Work” posted by National Underwriter here. Some excerpts:

“In a report given to House Republicans Friday, CMS actuary Richard Foster says the Community Living Assistance Services and Support Act, or CLASS Act, program provision in H.R. 3962 would bring in $39 billion in new federal revenue during its first 9 years of operation, but then start to fall apart.

“Foster predicts:

- Average premiums for the program would be $180 per month.

- By 2025, the program would start paying out more than it collected in premiums, resulting in a net federal cost.

- Despite assurances of actuarial soundness, there is a significant risk that the program would be unsustainable.

“‘Voluntary, unsubsidized and non-underwritten insurance programs such as CLASS face a significant risk of failure as a result of adverse selection by participants,’ Foster writes in his report. . . .

“‘This effect has been termed the ‘classic assessment spiral’, or ‘insurance death spiral’,’ he writes. . . .”

You can find the full report of the CMS Actuary here (PDF). And it’s a doozy going much further than nixing the CLASS Act to lambasting the House’s health reform proposal in general.