By Nancy Lopez 

Background 

Approximately 10 million American seniors and individuals with disabilities need long-term services and supports (LTSS),^[1] and the number is expected to increase to nearly 21 million by 2040.^[2] Private long-term care insurance represents only a fraction of long-term care financing, due to a host of issues ranging from the high cost of insurance premiums to concerns about the high rate of coverage denials.^[3] At the same time, federal assistance for LTSS is limited. Medicare only covers short-term skilled nursing care services and home health services, and Medicaid, the primary payer of LTSS (almost 50%^[4]), covers a range of services, but is only available to low-income individuals with disabilities. Moreover, Medicaid is more likely to cover institutional, rather than home and community-based, services and supports.^[5] Finally, there are few provisions in existing law that provide for federal subsidies of long-term care premiums and direct care through preferential tax treatment under the Internal Revenue Code.^[6] 

To counteract these deficiencies, Congress has over the years considered a range of proposals to provide LTSS to seniors and persons with disabilities, ranging from new public programs to Medicaid expansions to incentivizing the purchase of private long-term care insurance.^[7] In the Patient Protection and Affordable Care Act (ACA), Congress addressed the long-term care needs of the elderly and disabled by making a number of changes in Medicaid coverage of home and community based services,^[8] and by establishing the Community Living Assistance Services and Support (CLASS) program,^[9] a voluntary, federally administered health insurance program designed to assist eligible individuals in purchasing long-term community living services and supports. Although the CLASS program enjoyed widespread support by disability advocates, who praised the program’s ability to help functionally limited individuals maintain their independence in the community, opponents — including most Republicans and some fiscally conservative Democrats^[10] — voiced concerns regarding possible long-term costs of the program to the federal government and expressed fear that the program would become a federal entitlement program.^[11] The purpose of this Implementation Brief is to discuss implementation of the ACA’s CLASS program. 

Changes Made by the Health Reform Law (P.L. 111-148, §8002) 

Program Eligibility and Enrollment 

• Eligibility for CLASS is limited to working, non-institutionalized individuals over the age of 18 who are receiving taxable income, including the self-employed, active duty military or part-time workers. By definition non-working spouses, children, and adults who have already reached retirement age are not eligible. Pre-existing conditions cannot be used at any time to set premium rates or to deny enrollment.^[13]
• Enrollment for eligible individuals is voluntary and can be done by two methods: through their employer, if their employer chooses to participate in the program, or through an alternate method (still to be established by the Secretary of Health and Human Services (HHS)) for self-employed individuals, individuals with more than one participating employer, or those with a non-participating employer. An individual may only disenroll from the program during the yearly disenrollment period.^[14]
  • Employer participation is voluntary. Employers choosing to participate may automatically enroll eligible employees in a fashion similar to 401K procedures; however, any employee can “opt out” of the program.^[15]

Financing 

• ACA requires that no taxpayer funds be used for the CLASS program;^[16] as a result, the program is to be financed completely by enrollee premiums paid monthly and deposited into an interest-bearing trust fund called the CLASS Independence Fund (managed by the Secretary of the U.S. Treasury).
• Premiums: The Secretary of HHS is to set CLASS premiums which, according to the ACA, are required to be of sufficient amount to maintain the program’s solvency 75 years out from when the program begins. Initial premiums may only be age-adjusted, and then remain the same throughout the enrollee’s participation in the program (as long as the enrollee remains “active”). Changes to premiums can only occur to protect the solvency of the program. If an individual re-enrolls after failure to pay premiums, premiums are recalculated to the age of re-enrollment.^[17]
  • A premium rate not to exceed five dollars a month will be set for individuals with income below poverty line and employed full-time students under age 22. Both these groups will be required to submit to annual verification procedures will be established by the Secretary of HHS.^[18]

Benefits Eligibility 

• To be eligible for CLASS program benefits an individual must have paid premiums to the CLASS program for at least 5 years and earned taxable income for at least 3 out of those 5 years (an amount equivalent to be credited with ¼ of social security coverage);^[19] and must be determined to have a functional limitation or cognitive impairment (to be defined by the Secretary of HHS) expected to last more than 90 days and certified by a licensed health care practitioner. “Functional limitation” is defined as the inability to perform a minimum number of activities of daily life (ADLs) (e.g., bathing, eating, dressing); a cognitive impairment that requires substantial protective supervision (e.g., Alzheimer’s); or other limitations as determined by the Secretary.^[20]
• ACA provides for presumptive eligibility for active enrollees who applied and attested to eligibility for the maximum cash benefit allowed, are institutionalized (in a hospital, nursing facility, or facility for the mentally retarded or for mental disease), and are in the process of (or within 60 days of) being discharged from the institution.^[21]
• ACA requires the Secretary of HHS establish a variety of regulations, procedures and processes regarding benefit applications, eligibility assessments, eligibility determinations, redetermination and appeals.^[22]

CLASS Program Benefits 

• CLASS Independent Benefit Plan: The Secretary of HHS, along with appropriate actuaries and other experts, must develop at least 3 alternative actuarially sound benefit plans for consideration for designation as the CLASS Independent Benefit Plan to be evaluated by the CLASS Independence Advisory Council (IAC). The Secretary of HHS, after considering the IAC’s recommendation, must designate one benefit package as the CLASS Independence Benefit Plan no later than October 1, 2012.^[23]
• CLASS Program Benefits: The CLASS program offers the following benefits to eligible beneficiaries:
  • Advocacy Services: Provides help with the appeals process, recertification of benefit eligibility, and any other assistance deemed necessary by the Secretary;.^[24]
  • Advice and assistance counseling: Provides help with eligibility benefits, services, decisions concerning medical care and other services required by the Secretary;^[25] and
  • Cash benefit: Calculated based on the individual’s degree of limitation or impairment but will be no less than $50 per day for the first year adjusted thereafter for inflation. Cash benefits are paid daily or weekly and are deposited into a debit account established for each beneficiary.^[26]
    • Beneficiaries, or their authorized representative, can withdraw the cash to pay for non-medical services and supports (home modifications, accessible transportation, personal assistants, family caregiver and respite care).^[27]
    • Cash benefits are not subject to a lifetime limit and can be deferred from month-to-month to be received in one lump-sum payment within a 12 month period.^[28]
    • ACA requires beneficiaries to periodically re-certify their eligibility for receipt of benefits and provide records of expenditures attributable to the total cash benefit received by beneficiary in the preceding year.^[29]

Interaction with other Long-Term Care Insurance Programs 

• The CLASS program cash benefits are supplemental to an eligible beneficiary, meaning that they are meant to complement other federal health care benefits for which the beneficiary is eligible. Also, cash benefits will not have an effect on determination or continuation of a beneficiary’s eligibility for receipt of benefits under other Federal, State or locally funded assistance programs.^[30] ACA specifies that:
  • Beneficiaries enrolled in Medicaid and living in an institutional setting can retain 5% of their daily or weekly CLASS cash benefit plus their monthly needs allowance with the remainder of the cash benefit to be applied to the facility’s cost of their care (with Medicaid as secondary payor).^[31]
  • Beneficiaries enrolled in Medicaid and receiving home and community-based services or PACE can retain 50% of their daily or weekly CLASS cash benefit, with the remainder applied to the State’s cost of their care (with Medicaid as secondary payor). However, the State cannot used the remainder of the cash benefit to claim federal matching funds. A state can only receive the remainder of the CLASS program cash benefit if that state’s Home and Community Based Service waiver or state plan amendment provides for statewideness and comparability and offers case management services, personal care services, habilitation services and respite care.^[32]

Tax implications of the CLASS Program 

• Under the Internal Revenue Code, the CLASS Program is to be treated in the same manner as qualified long-term care insurance; thus, premiums are deductible, consistent with the current law, as a medical expense and benefits are tax exempt under the same standards as commercial tax qualified insurance products.^[33]

Oversight and Reporting 

• The CLASS Independence Fund is overseen by the U.S. Treasury and managed by the Secretary of the Treasury in a similar manner and extent as the Medicare Federal Supplementary Medical Insurance Trust Fund. The board of trustees holding the Fund must submit a fund status report to Congress by April 1 of each year, send an immediate report to Congress if the Fund is deemed not actuarially sound, and review and recommend policy for managing the Fund.^[34]
• The Secretary of HHS must submit an annual report to Congress starting January 1, 2010, which shall include for the fiscal year the total number of program enrollees and eligible beneficiaries; total amount of cash benefits provided; any incidents of fraud or abuse; and recommendations as determined necessary by the Secretary for improvements to the program.^[35] The HHS Inspector General must also submit a report to the Secretary of HHS and Congress regarding overall progress of CLASS program and any fraud, waste, and abuse in the program as well as findings regarding aspects of eligibility and financing issues.^[36]
• The Secretary of HHS must establish a Personal Care Attendants Workforce Advisory Panel to advise Secretary and Congress on workforce issues.^[37]
• The ACA establishes the CLASS Independence Advisory Council (IAC) to advise the Secretary of HHS on the general policies of administrating the CLASS program.^[38]

Implementation 

Agency 

• The Department of Health and Human Services is responsible for development and implementation of the CLASS Act Program with regard to aspects noted in the above sections.
• The Department of Treasury is responsible for aiding the Secretary with the development of enrollment and disenrollment procedures, including establishing an alternative payment mechanism for premiums. The Secretary of Treasury is charged with managing and investment of payments to the CLASS Independence Fund.
• The Department of Health and Human Services announced plans to place the office of the CLASS program within the Administration on Aging.^[39]

Key Dates 

• June 21, 2010 – Secretary is required to establish Personal Care Attendants Workforce Advisory Panel.^[40]
• January 1, 2011 – CLASS Act program established.^[41]
• January 1, 2011 – Information on establishment of CLASS Act program and program benefit provided to be included in the National Clearinghouse for Long-Term Care.^[42]
• January 1, 2012 – Secretary required to have established (1) an Eligibility Assessment System; (2) agreements with Protection and Advocacy Systems for each state; and (3) agreements to provide advice and assistance counseling with public and private entities.^[43]
• March 23, 2012 – States will be required to assess their infrastruc¬tures to support personal care attendant workers.^[44]
• October 1, 2012 – Secretary is required to designate a CLASS Act Independence plan and publish details of the plan.^[45]
• January 1, 2014 – Secretary is to submit a report beginning this year to Congress regarding status of CLASS program.^[46]

Process 

• The law requires the Secretary of HHS to issue implementing regulations and guidelines and other policy guidance for virtually all aspects of the CLASS program including the establishment of the CLASS Act program and procedures, the CLASS Act Independence Plan, program eligibility, enrollment, and benefits provided under the Plan.

Key Issues 

• Premiums/Program solvency: How will actuaries set initial premium levels given uncertainty of the demographics of those who enroll? How will the absence of underwriting contribute to adverse selection and how will adverse selection be addressed? If premiums increase, will that deter new enrollees? Presumptive eligibility looks to be determined without a benefit assessment; will that increase the amount of claims by those presumptively eligible? What options does the Secretary have for setting premiums and should they be indexed?
• Benefits: How can the cash benefit be used? Cash benefits are intended to be used for long term care and supports, but how will that information be documented? Will it be limited to long-term care services and supports or can benefit be used for other purposes? What level of disability will be required to receive benefits and who will perform functional assessment and who will make eligibility determinations? How will benefits be tailored to the needs of each beneficiary? What are the annual verification procedures for students and individuals with below poverty income and will that process be a barrier to enrollment?
• Interaction with other LTSS insurance market: How will benefits compare with private long-term care insurance? Will benefits be paid taking into account any private long-term care insurance, or will they be paid without regard to other coverage? Will the CLASS act benefit be price competitive with private insurance and will that matter to enrollment? How can LTC insurance wrap around CLASS benefits so that both complement each other?
• Enrollment: To the extent that employers choose not to participate in administering how will payroll deductions be collected, how will individuals enroll or disenroll? How will the federal government design the alternative payment plan for those who don’t enroll with their employer? What portion of the 3% of premiums allowed for administrative expenses are used for marketing and education of the program, and is that amount enough to engage is effective campaigning? What are the rules regarding re-enrollment and receiving benefits? What will be the alternative method for enrollment if not through the employer –how will that method be funded and implemented?
• Safeguards: How clear will the “opt out” provision have to be for eligible individuals?
• Oversight: What is the interface between the Board of Trustee with the Advisory Panel in assisting the Secretary? How will transparency be attained regarding the CLASS Independent Fund? What level of information will be made to the beneficiaries? How will fraud be monitored?
• Defining Terms: How will the Secretary define functional limitations and cognitive impairment and what will be the effect on disability claims? What assistance and counseling services will the Secretary of HHS deem necessary for beneficiaries and funds will be used to staff those services? What is an “authorized representative”?

Agency Action 

• On June 16, 2010, the Department of Health and Human Services announced the establishment of The Personal Care Attendants Workforce Advisory Panel required under the ACA.^[47]
• On November 16, 2010, the Department of Health and Human Services announced the establishment of The Independence Advisory Council required under ACA.^[48]
• On January 5, 2011, the Secretary of the Department of Health and Human Services announced plans to place the office administering the CLASS Act program within the Administration of Aging.^[49]
• On January 28, 2011, the Administration on Aging published a notice establishing the Office of CLASS, stating the primary focus and functions of the new office.^[50]

Authorized Funding Levels 

• The CLASS Act program is funded 100% by annual premiums collected (of which 3% can be used for the administration of the program), recouped accrued premiums, and any amount remaining after investment of payments. The Fund amount will remain available without fiscal limitation to invest on eligible enrollee’s behalf, to pay administrative expenses, and to pay cash benefits.^[51]