The U.S. Administration on Aging estimates that about 70 percent of Americans 65 years of age or older will need long-term services and support to assist them with activities of daily living (eating, toileting, transferring, bathing, dressing and continence). The provision for such services is currently fragmented and expensive. Assisted living care, for example, could cost $5,000 a month or more. Medicare provides little assistance. Medicaid requires impoverishment and favors nursing home institutionalization instead of the more desirable home and community-based services. Private long-term care insurance has not been a popular option, either, attracting only about 10 percent of persons 65 years of age or older.
The Community Living Assistance Services and Supports Act (“the CLASS Act”), enacted in 2010 as part of the federal health care reform legislation, offers a new option for workers to help pay for their future long-term care services. A hybrid of a public benefit program and long-term care insurance, the law establishes a federal government-administered program whereby individuals who enroll and pay the requisite premiums are eligible to receive modest cash payments for home and community long-term care services. The effective date of the CLASS Act is January 1, 2011, although it is unlikely that participants will be able to enroll until late 2012 due to the time needed to issue implementing regulations.
Persons 18 years of age or older who are “actively employed,” including employees, the self-employed, members of the military and working students, will be eligible to enroll. Medical underwriting is not required. Employment is defined as earning only enough to be credited with one-quarter of coverage under the Social Security Act ($1,120). Persons who are not actively employed, such as stay-at-home spouses, are not eligible to participate.
To encourage enrollment and increase the pool of participants, the CLASS program is supposed to enroll employees automatically unless they take action to “opt out.” Employees will have funds withheld from their payroll checks similar to deductions for their retirement plans. Employers have the option of participating; however, employees of employers who do not agree to participate, as well as the self-employed, will need to take action to enroll in the program.
Specific premiums and benefits have not yet been established. The law requires benefits to be actuarially sound for 75 years, and no taxpayer money can be used to subsidize the program. Premiums will be based solely on the age of the enrollee and cannot be raised as long as the enrollee remains in the program, unless system-wide increases are necessary to maintain program solvency. One exception to this rule is that an enrollee who is at least 65-years-old, paid premiums for 20 years and is no longer actively employed cannot have premiums increased at all. Another exception is that persons with low income (defined as income below the poverty level) or students younger than 22-years-old will pay only a nominal premium of $5/month (adjusted annually for inflation).
An enrollee must contribute for a minimum of 60 months in order to qualify for benefits. In addition, the enrollee must have been employed for three calendar years of the first 60 months of paying premiums. Thus, an employee who works for the first three years after enrollment and continues to pay premiums is eligible for benefits as early as five years after enrollment. This relatively short vesting period and minimal work requirement makes this program attractive to younger persons who have a disability and are able to work in the immediate future, but who may need greater care later.
If a lapse of premium payments exceeds three months, then the enrollee must have paid premiums for at least 24 consecutive months to qualify for benefits. Also, an enrollee who drops out of the program for more than three months and later reenrolls has to pay a new premium amount based on the age of reenrollment. Persons who reenroll after a five-year lapse must also pay a surcharge to the new premium rate and will lose credit for prior participation in the program.
Once vested, an enrollee is eligible for benefits upon certification by a licensed health care practitioner that, for at least 90 days, the enrollee:
1) cannot perform at least two or three (regulations will specify the precise number) activities of daily living without substantial assistance or
2) requires substantial supervision to protect from threats to health and safety due to substantial cognitive impairment, or
3) has a level of functional limitations similar to the first two criteria.
Benefits will vary based on the care need. Benefit funds may be used to purchase care services or nonmedical services and supports the beneficiary needs to maintain independence at home or in the community, as well as for health care decision-making. Tax treatment of benefits is the same as tax treatment for long-term care insurance. Payments held by the fund are not an available resource for any federal public benefit program. Benefit payments are to “supplement but not supplant” other health care benefits for which the beneficiary is eligible under Medicaid or other federally-funded programs providing health care benefits or assistance.
It is too early to tell if CLASS will work. To succeed, the program will need to enroll low-risk participants and not just persons who have a relatively high likelihood of needing the benefits. Premiums cannot be set too high to discourage participation, and benefits cannot be too generous to make the program unsustainable. Otherwise, the program can result in “adverse selection,” meaning that only those who need the benefits will enroll, resulting in a “death spiral” of insufficient funds to pay the many claims. In any event, the CLASS Act takes a different approach as to how we can pay for long-term care services. If successful, the program will allow individuals more time to remain in the community.
Morris Klein is an elder law attorney in Bethesda, Maryland, and a past chair of the MSBA Elder Law Section.