Wednesday, November 09, 2005

DeWine in the Details

Senator DeWine released a press announcement recently detailing his cosponsorship with Senator Ted Kennedy of the Community Living Assistance Services and Supports Act -- or the CLASS Act. (See S.1951 for the 109th Congress at the Library of Congress site.)

Text of the press announcement:

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Speech of Senator DeWine

FLOOR STATEMENT: INTRODUCTION OF THE CLASS ACT

Wednesday, November 2, 2005

Mr. President, I am pleased to join Senator Kennedy today in introducing the Community Living Assistance Services and Supports Act -- or the CLASS Act.

Unfortunately, most Americans are not prepared for the costs of long-term care needs when they arise. High premiums have discouraged many Americans from purchasing long-term care insurance in the private market. Furthermore, underwriting practices have excluded individuals with existing disabilities from purchasing plans.

Right now, 10 million people suffer from severe functional impairments and by 2020 that number will have increased to 15 million. Therefore, in the next 15 years, we will experience a 50 percent growth in the number of persons with severe functional impairments. Some of those people will be struck suddenly -- through accidents or sudden illness. And the reality is that anyone of us here today could face sudden impairment and disability. We won’t see it coming until it happens, and most of us will not be prepared to provide for necessary, long-term care needs.

Some people may end up with a degenerative disease, such as Parkinson’s disease, which leads to increased impairments. They may know now what their needs will be, but are unable to purchase private insurance due to this pre-existing condition. Others will age and develop other physical or cognitive impairments, such as Alzheimer’s disease.

Although we know that age is inevitable, we are not properly preparing for this eventuality or the possibility of sudden accidents and many people are financially unable to purchase available insurance due to the high price. However, the fact remains that millions of Americans will need the services that the CLASS Act seeks to provide.

The CLASS Act will help Americans to remain independent in their communities by creating a new long-term care insurance program. This program will be available to all working Americans above the age of 18. For only $30 per individual each month, and a minimum of 20 quarters of payments, the CLASS Act will help those who do not have adequate long-term care insurance due to cost or current disability. This bill will allow people to choose the supports they need when and if they become severely impaired. It will help them remain independent. It will help them remain in their communities. It will help them remain with their families.

This is a good bill. I thank Senator Kennedy for his work on this bill, and I encourage my colleagues to support it.

On its surface the CLASS Act seems harmless enough...a new government sponsored insurance program funded by the contributions of enrollees. As with most things from Washington, the Devil is in the details.

According to the press announcement, an individual will not be able to submit an assistance claim without 20 quarters of payments/premiums. 20 quarters is 5 years or 60 months. At $30 a month, an individual will be able to make his/her first claim after only $1,800 of premiums being contributed.

Senator DeWine's office was contacted several times by phone with inquiries on the costs for implementing this initiative. The initial responses from his press secretary was that the initiative was designed to be "self-sustaining". An email was sent directly to the press secretary requesting a formal written reply reaffirming the "self-sustaining" nature of the initiative.

Here is an excerpt from the response addressing the issue of self-sustainability:

...The Congressional Budget Office (CBO) is required to write a cost estimate for virtually every bill that a Congressional Committee reports. That being said, this process takes time and the CBO usually releases their cost estimate when a committee reports a bill.

Until then, I know the CLASS Act was designed with the help of actuaries to be self-sustaining. The Secretary
[of Health and Human Services] is given the power within the Act to raise the amount of payroll deductions if it is needed...
At a minimum, Ohioans should expect their senator to have some 'ball-park' cost figures associated with a major initiative like the CLASS Act. People of Ohio, and the United States for that matter, should know ahead of time if we're creating another entitlement that will have potential future claims against the general revenue fund.

Here are some provisions in the proposed legislation that are of concern:

  • SEC. 2902. AUTOMATIC ENROLLMENT WITH OPT-OUT ELECTION.

    `(1) IN GENERAL- Subject to paragraph (2), the Secretary shall establish procedures under which each individual described in subsection (c) shall be automatically enrolled in the CLASS program by an employer of such individual in the same manner as an employer may elect to automatically enroll employees in a plan under section 401(k), 403(b), or 457 of the Internal Revenue Code of 1986...

    `(b) Election to Opt-Out- An individual described in subsection (c) may elect to waive enrollment under the CLASS program at any time in such form and manner as the Secretary shall prescribe.
    What level of participation is the Senator expecting? The participation rate will greatly determine the premium funding rate for this new insurance program. If a large segment of the population 'opts-out' that will potentially increase the burden on the premiums from those that 'opt-in'. Will the general fund be tapped to cover claims that can't be paid off from contributed premiums?
  • SEC. 2903. PREMIUMS.

    (4) NOMINAL PREMIUM FOR INDIVIDUAL'S WITH INCOME THAT DOES NOT EXCEED 150 PERCENT OF THE POVERTY LINE-

    (A) IN GENERAL- In the case of an individual whose income does not exceed 150 percent of the poverty line, the monthly premium for enrollment in the CLASS program shall be the applicable amount under subparagraph (B).

    (B) APPLICABLE AMOUNT- The Secretary shall establish premium amounts which shall apply to an individual described in subparagraph (A) in lieu of the premium amount which would otherwise apply to the individual under paragraph (1), (2), or (3) (whichever is applicable). Such amounts shall be nominal and, in the case of an individual who, but for this paragraph, would be subject to the premium imposed under paragraph (3), may be adjusted in accordance with the factors described in that paragraph.
    This provision will allow for some individuals to pay smaller premiums. That means they will be subsidized by other full premium paying individuals. What happens if only individuals meeting the 150 percent of the poverty line qualification apply for the insurance plan? Will the general revenue fund be tapped into?
  • SEC. 36. PREMIUM COSTS OF LOW-INCOME CLASS ENROLLEES.

    (a) In General- In the case of a low-income CLASS enrollee, there shall be allowed as a credit against the tax imposed by subtitle A an amount equal to 50 percent of the amount paid by the taxpayer for enrollment of the taxpayer and the taxpayer's spouse in the CLASS program for eligible enrollment months beginning in the taxable year.
    Clearly this is a provision that will paid for from the general revenue fund. Tax credits are refunds on taxes already paid. The bill does not say that these credits will come out of the premium fund.

  • Section 203 also allows employers to recover a portion of their costs associated with implementing a payroll deduction via a tax credit as well; another cost to the general revenue fund.
Hat Tip: BizzyBlog via email

2 Comments:

Anonymous Anonymous said...

I don't know where to begin with this, but I'll try.

1. It's a setup for adverse selection. The people who would want to enroll are the ones who are subsidized, so you'll have a higher percentage of them in CLASS than in the population of all eligibles.

2. I doubt seriously that the tax credits being granted are considered in the "self-sustaining" claim.

3. I'd like to see the actuaries' reports on this, because I'd like to see what their predictions are on participation, utilization, etc.

4. I don't believe that in a political world the 5-year waiting period will be sustainable. Someone needing services much earlier into their participation will want it, complain about it, get it, and the dam will break. As soon as the 5-year wait is blown, sustainability is out the window. Ted Kennedy knows that, and doesn't care. DeWine, assuming he's still trying to be a fiscal conservative, isn't smart enough to know it.

5. Also not figured in are compliance costs being imposed on employers.

And that's for starters.

Tom Blumer
BizzyBlog.com

PS. Thanks for the QOTD designation.

November 9, 2005 at 8:52 PM  
Anonymous Eric Kephas said...

Considering all he's facing, you'd think DeWine would be more careful about the company he keeps.

November 14, 2005 at 1:53 AM  

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