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A Report
on the
Actuarial,Marketing, andLegal Analyses
of the
CLASS Program
U.S. Department of Health and Human Services
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INTRODUCTION
The Community Living Assistance Services and Supports (CLASS) Act was enacted as TitleVIII of the Patient Protection and Affordable Care Act (ACA), P.L. 111-148 (Mar. 23, 2010),which amended the Public Health Service Act, 42 U.S.C. section 201
et seq
., by adding theCLASS Act as Title XXXII. The law was designed to establish a voluntary, national insuranceprogram for American workers to help pay for long-term services and supports they may need inthe future. The CLASS program seeks to help enrollees live independently in the communityand to give them considerable freedom to determine the necessary services and supports theypurchase with their coverage. By statute, CLASS benefits must be funded entirely throughenrollee premiums; there is no taxpayer subsidy. Appendix A includes a description of the Actthat was prepared by the CLASS Office to guide their work.There is a critical need to find ways to help Americans prepare for their long-term care needs. Almost seven out of ten people turning age 65 today will experience, at some point in their lives,functional disability and will need some paid or unpaid help with basic daily living activities.While most people who need long-term care are in their 70s and 80s, young people also canrequire care, with 40 percent of long-term care users today between the ages of 18 and 64.Long-term care is also expensive. While costs for nursing home care vary widely, they averageabout $6,500 per month, or anywhere from $70,000 to $80,000 per year. People who receivelong-term care services at home spend an average of $1,800 per month. Expected lifetime long-term care spending for a 65 year old is $47,000; sixteen percent will spend $100,000 and fivepercent will spend $250,000.Medicare does not cover long-term care services. Medicaid paysfor such services only for people with limited financial means; qualifying for Medicaid oftenmeans exhausting all other resources.Furthermore, few private mechanisms are available to help people plan ahead to pay for theirfuture care. Long-term care insurance, by far the most popular private option available, can becostly and difficult to purchase for those with pre-existing health conditions or disabilities. Onlyabout 2.8 percent of Americans have a policy. For workers who already experience a disabilityand a need for long-term services and supports, the options are even fewer.The CLASS Act would add a new option for people who are employed. Among the unique andattractive features that differentiate it from long-term care insurance products available on theprivate market are that it offers lifetime benefits, is not underwritten, and provides a cashbenefit.The CLASS Act directs the Secretary of the Department of Health and Human Services (HHS),“in consultation with appropriate actuaries and other experts, [to] develop at least 3 actuariallysound benefit plans as alternatives for consideration for designation by the Secretary as theCLASS Independent Benefit Plan under which eligible beneficiaries shall receive benefitsunder” the law. The Act requires that each of the plan alternatives be designed to provide thebenefits specified in the law consistent with a set of requirements, also specified in the law,concerning, among other things, premiums, the vesting period, benefit triggers, and the cashbenefit. Of particular significance, the Act makes clear that the Secretary shall establish
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premiums for each plan “based on an actuarial analysis of the 75-year costs of the program thatensures solvency throughout such 75-year period.”Consisting of two parts, this report documents the work undertaken by the Department of Healthand Human Services (HHS) to fulfill the Secretary’s responsibilities under the law. Part Onedescribes the organizational, analytical, policy, and implementation steps taken by HHS todevelop the CLASS plan alternatives and prepare for implementation. Part Two provides legalanalysis of the plans undertaken by the Office of the General Counsel.This report also includes numerous links to material posted on the Web and over 200 pages of appendices. These materials more fully describe ideas that are only summarized in the report forthe sake of brevity and readability. Complete descriptions of all the CLASS benefit designs thatwere considered can be found in the report of the CLASS Chief Actuary in Appendix O. Wealso include links to influential research briefs and analyses that helped shape the thinkingbehind the policies that are discussed in the report. In the interest of openness and transparency,we have also included relevant information about consultations and meetings with experts andstakeholders.
PART I: DEVELOPING THE CLASS PROGRAM
This Part describes the organizational, analytical, policy, and implementation steps taken byHHS to develop the CLASS plan alternatives and prepare for implementation. It consists of seven sections. Section One outlines the offices and divisions within HHS and the roles playedby them, and the functions and status of two federal advisory committees created by the CLASSAct. Section Two briefly outlines the HHS process used for identifying policy issues andenumerates the issues identified. Significant documents (both internally and externallydeveloped) that informed policy and implementation discussions are noted. Section Three listspublic presentations, along with links to the relevant Congressional hearing record. Section Fourdiscusses the work undertaken to draft proposed regulations. Section Five presents the activitiesconducted to support marketing the program to employers and individuals, as well as consumerresearch. Sections Six and Seven describe the development of two actuarial models forconducting estimates for CLASS premiums and the plan options that were developed andmodeled, respectively.
SECTION ONE: HHS MANAGEMENTPRE-ENACTMENT
The Office of Disability, Aging and Long-Term Care Policy in the Office of the AssistantSecretary for Planning and Evaluation (ASPE) led the analytical work relating to CLASS prior toenactment. For 30 years, ASPE has maintained the only office in the federal governmentdedicated to long-term care (LTC) policy research and analysis. ASPE’s LTC research portfolioincludes, among other topics, an extensive array of projects on LTC reform, planning andawareness, insurance, community services and financing. ASPE originated and managed theCash and Counseling demonstration, on which the CLASS cash benefit is based.
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