THE NEW LONG-TERM CARE ENTITLEMENT

June 3, 2010

One of the provisions of ObamaCare is a new federal program for long-term care.  The Community Living Assistance Services and Supports (CLASS) Act establishes a federal insurance program to provide benefits to workers who become functionally disabled -- unable to perform normal activities of daily living, such as eating or bathing. 

For eligible workers and retirees, the CLASS program will pay some of the nonmedical expenses of long-term care, such as an aide to bathe them or prepare meals at home, or to defray some of the costs of nursing home care.  The program is voluntary, and will be funded by premiums paid by workers, say Biff Jones, a graduate student fellow, and Joe Barnett, director of policy research at the National Center for Policy Analysis. 

According to the Congressional Budget Office (CBO): 

  • The average monthly premiums will start at $123 in 2011.
  • After five years of premium payments, participants will be eligible for a projected benefit of about $75 per day ($27,375 annually), if they have at least two functional limitations and a health care practitioner certifies the limitations are expected to last more than 90 days.
  • They can receive the inflation-adjusted benefit for the rest of their lives, as long as the limitations remain.  

Further: 

  • Nearly 10 million workers are expected to enroll in the CLASS program by 2019.
  • The CBO estimates that the program will collect $41 billion in premiums during the first five years before it begins paying benefits.
  • Over the first 10 years the government will collect about $72 billion more in premiums than the benefits it pays out.  

If this were a private insurance program, the insurer would invest the premiums in stocks and bonds, and the return on those investments would pay for a substantial percentage of the eventual payouts, say Jones and Barnett.  By contrast, the surplus CLASS funds will be spent on general government operations and replaced with IOUs from the Treasury.  After the first 20 years or so, however, the CBO estimates that the program will begin to pay out more benefits each year than the premiums it collects.  For every dollar by which benefits exceed current premium revenues, the federal government will have to tax or borrow another dollar.  The unfunded liability will grow in following years. 

Source: Biff Jones and Joe Barnett, "The New Long-Term Care Entitlement," National Center for Policy Analysis, Brief Analysis No. 707, June 3, 2010. 

For text:

http://www.ncpa.org/pub/ba707 

 

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