The CLASS Act Won’t Be Financially Viable
“[A] Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.”
— Democratic Senator Kent Conrad (D., N.D.)
“Thirty-six years of actuarial experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue.”
— Medicare Chief Actuary, Richard Foster
They’re talking about the Community Living Assistance Support and Stability Act (CLASS Act) which passed as part of ObamaCare. CLASS provides long-term care insurance to seniors on a voluntary basis.
See post below and Avik Roy and Ezra Klein.
The program was the brainchild of Senator Ted Kennedy. The adverse selection will be very high. To qualify for a benefit, a worker only has to be connected to a job for three years while paying premiums. There is nothing in the law to discourage people from waiting to enroll until they begin to experience physical impairment. Someone who is experiencing declining mobility, for example, could sign up and pay premiums for three years while continuing to work. They could then continue to pay premiums for two more after leaving a job and then qualify for benefits. Paying as little as in $7,500 in premiums over five years could potentially result in benefits worth $25,000 per year.
If the only people who sign up are those who pay $7,500 in premiums in return for a $25,000 annual benefit, the program will crash in short order.
A real class act. (Pun intended.)
Those dishonest, policy wonks at HHS have no class!
Adverse selection will get you every time.
I don’t know why people are so averse to saving for future care. We buy life insurance. Why not long term care insurance?
Maybe it’s because life insurance looks more like a lottery payment than a series of checks written to home health aides. There’s no glamour in having your diaper changed, but there is glamour in leaving your family with a fat check.