On Tuesday January 31, 2012, the House is scheduled to consider H.R. 522 “providing for consideration of the bill (H.R. 1173) to repeal the CLASS program” (as described below).  On Wednesday February 1, 2012, H.R. 1173, the Fiscal Responsibility and Retirement Security Act of 2011, will be considered under a rule.  The rule provides one hour of general debate on the bill, with 40 minutes equally divided and controlled by the chair and ranking minority member of the Committee on Energy and Commerce and 20 minutes equally divided and controlled by the chair and ranking minority member of the Committee on Ways and Means.  The rule provides an overall three-hour limit on consideration of amendments and for one motion to recommit with or without instructions.  H.R. 1173 was introduced by Rep. Charles Boustany (R-LA), on March 17, 2011 and was referred to the Committee on Energy and Commerce and to the Committee on Ways and Means.  The Energy and Commerce Committee held a mark-up session on November 29-30, 2011 and ordered the bill as amended favorably reported by a vote of 33-17.  Subsequently, the Ways and Means Committee held a mark-up session on January 18, 2012 and ordered the bill favorably reported without amendment by a vote of 23-13.

H.R. 1173 as amended repeals title VIII of the Patient Protection and Affordable Care Act (PPACA) which established the Community Living Assistance Services and Supports (CLASS) Program—a national, voluntary long-term care insurance program for purchasing community living assistance services and supports.  Title VIII also authorized and appropriated funding through 2015 for the National Clearinghouse for Long-Term Care Information first established in the Deficit Reduction Act of 2005.  H.R. 1173 would replace those appropriated funds for the clearinghouse for 2013 through 2015 ($9 million) with funding subject to future appropriation actions.

Section 8002 (title VIII) of the president’s government takeover of healthcare law amended the Public Health Services Act (title XXXII) to create the Community Living Assistance Services and Supports (CLASS) program.

CLASS directs the HHS Secretary to establish a voluntary, national insurance program for American workers to help pay for long-term care services and supports such as home modifications, assistive technology, accessible transportation, homemaker services, respite care, personal assistance services, home care aides and nursing support.

During Congressional debate, advocates of the program argued that the private long-term care insurance market options were too costly and/or too difficult for certain populations to access due to pre-existing conditions and disabilities.

Accordingly, the intent of CLASS is to develop a federally run voluntary long-term care insurance program for purchasing nonmedical services to use either at home or at an LTC facility so that individuals with functional limitations can better maintain their personal and financial independence. 

The program is to be funded solely with collected premiums without any federal subsidies or taxpayer funding.  The premiums are to be determined by the HHS Secretary based on 75-year actuarial estimates of expected future use and expenditures.  Coverage is guaranteed issue with no medical underwriting (i.e., everyone is accepted) and premiums vary by age at time of enrollment.

The program limits participation with few exceptions to workers and the self-employed.  If employers choose to participate in the CLASS program, all employees are automatically enrolled.  The program is “voluntary” because employees can opt out.  The HHS Secretary is required to develop procedures for an alternative process for individuals who are self-employed or whose employers do not participate in CLASS.

To be eligible for CLASS benefits, a participant must meet a five-year vesting requirement as well as other conditions.  To remain an active participant, a person must continue to pay premiums beyond the five year period.  Benefits to eligible recipients include a cash benefit of at least an average of $50 a day, indexed to CPI.  There is no limit on benefit duration.

Even before passage of the president’s government takeover of healthcare law, concerns were raised regarding CBO’s estimates – noting the premiums collected for CLASS could not be double-counted as federal savings to cover both the cost of other entitlement expansions contained in the law and used to cover the CLASS program benefits.

In addition, concerns were raised about the program’s solvency over the long-term and the affordability of the proposed benefit for consumers.

Because the program’s solvency was directly related to the CBO savings projections ($70 billion over 10 years), Members voiced questions about the potential increase in the nation’s deficit if the program became insolvent and the original projected savings were never generated. The $70 billion figure was based on the premise that during the initial 10 years of the program, it would collect more revenue in premiums than it would pay-out in benefits, including the first five years of the program in which no benefits are paid at all.

On October 14, 2011, HHS Secretary Kathleen Sebelius announced that HHS was suspending implementation of the CLASS program because of HHS's recognition that there is "no viable path forward" for developing a program meeting the applicable criteria.  Specifically, Secretary Sebelius announced that she did not “see a viable path forward for CLASS implementation at this time.”  (emphasis added)

On the same day, HHS issued a comprehensive analysis of its work on the CLASS program titled ‘‘Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program.’’  In that report, Administration on Aging Administrator Kathy Greenlee raised concerns with potential adverse selection, noting, ‘‘If healthy purchasers are not attracted to the CLASS benefit package, then premiums will increase, which will make it even more unattractive to purchasers who could also obtain policies in the private market. This imbalance in the beneficiary pool would cause the program to quickly collapse.’’

The affordability of the program’s premiums was also a concern.  The HHS analysis projected premiums even higher than had been previously estimated by outside actuaries, noting the basic CLASS benefit plan could cost, ‘‘$235 and $391 a month, and may cost as much as $3,000 per month.’’

Many of the concerns outlined by the Department in this report reiterate those raised before the program was enacted. Members of both parties and outside actuaries raised concerns, before and after passage, that the CLASS program was actuarially unsound and fiscally irresponsible ─ creating a long-term financial risk for the federal government and potential beneficiaries.

Additionally, Secretary Sebelius expressed her concerns with the CLASS program early last year. In testimony before the Senate Finance Committee on February 16, 2011, she recognized the program was “totally unsustainable.”

Separately, the independent Medicare actuary had earlier concluded that there is a “very serious risk” of the CLASS program becoming unsustainable, the American Academy of Actuaries warned that the CLASS program has a substantial risk of failure, and the President’s own Fiscal Commission recommended that the “financially unsound” program be significantly reformed or repealed entirely.  The Fiscal Commission stated:  “the program’s earliest beneficiaries will pay modest premiums for only a few years and receive benefits many times larger, so that sustaining the system over time will require increasing premiums and reducing benefits to the point that the program is neither appealing to potential customers nor able to accomplish its stated function.  Absent reform, the program is therefore likely to require large general revenue transfers or else collapse under its own weight.”

And Senate Budget Committee Chairman Kent Conrad famously called the program “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of.”

Finally, a bicameral Repeal CLASS Working Group issued “CLASS’ Untold Story: Taxpayers, Employers, and States on the Hook for Flawed Entitlement Program,” which includes documents obtained through a bicameral Congressional investigation revealing HHS was aware that the program was unsustainable as early as the spring of 2009.

Despite the Secretary’s suspension of the program as noted above, there is legitimate concern that if the CLASS program is not repealed, the program could go forward in some fashion at a later date.  The Secretary’s October 14, 2011 statement announcing HHS’ decision not to proceed with implementation “at this time” is fueling hope among advocates and concern among opponents as to whether HHS intends to move forward at some point.

It is also possible that advocates or other outside groups with standing could bring suit against HHS to compel implementation based on CLASS language requiring the Secretary to designate a “CLASS Act Independence Benefit Plan” by October 1, 2012.  The statute requires the Secretary to publish this designation of a benefit plan as a final rule. 

It does appear that the Secretary’s decision to suspend the program would be judicially reviewable at least as of October 1, 2012 and could result in a court ordering HHS to comply with CLASS language.  Only repeal of CLASS would negate this and other possibilities for the CLASS program to move forward.  A comprehensive CRS memo on standards and possibilities for judicial review of the Secretary’s October 14, 2011 decision and related matters such as establishment of the “CLASS Independence Advisory Council” is available here.

More detailed background information about CLASS can be found in the most recent version of CRS report R40842 here.

CBO estimates that enacting H.R. 1173 would reduce direct spending by $9 million over the 2012-2016 and 2012-2021 periods. H.R. 1173 also would increase spending subject to future appropriation by $9 million over the same periods. Pay-as-you-go procedures apply because enacting the legislation would affect direct spending. Enacting H.R. 1173 would have no impact on federal revenues (see below). The bill contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA).

On October 14, 2011, HHS Secretary Sebelius announced that she did not “see a viable path forward for CLASS implementation at this time.” CBO considers that announcement to be definitive new information and as a result, in its next baseline projections, CBO will assume that CLASS will not be implemented unless there are changes in law or other actions by the Administration that would supersede the Secretary’s announcement. Further, legislation to repeal the provisions of law establishing the CLASS program are now estimated as having no budgetary effect relative to current law.

However, the Secretary’s announcement does not affect use of funds authorized and appropriated for the National Clearinghouse for Long-Term Care Information first established in the Deficit Reduction Act of 2005. Therefore, the replacement of these appropriated funds for the clearinghouse for 2013 through 2015 with funding subject to future appropriation actions would have a budgetary effect of reducing direct spending by $9 million and subsequently increasing spending subject to appropriation by $9 million over the 2012-2021 period.

Additional detail on CBO’s scoring is available here.

Amendment No. 1—Rep. Jackson-Lee (D-TX):  This Amendment would prevent repeal of the CLASS program until such date as the Secretary of Health and Human Services certifies to the Congress that at least 60 percent of individuals in the United States who are 25 years of age or older have private long-term care insurance.

 Amendment No. 2—Rep. Jackson-Lee (D-TX):  This Amendment would prevent repeal of the CLASS program until such date the following studies are completed and reported to Congress:  (1) the Director of the Congressional Budget Office completes a macroeconomic study and submits a report to the Congress on the impact on the Federal, State, and local governments of not having long-term care insurance; and (2) the Secretary of Health and Human Services completes a study and submits a report to the Congress on the best practices necessary to have a viable, financially secure, and solvent long-term care insurance program.  An exception to the above would permit to go forward and take effect upon enactment certain conforming changes regarding Section 6021(d) of the Deficit Reduction Act of 2005.

 Amendment No. 3—DL. Christensen (D-St. Croix, VI):  This Amendment would prevent repeal of the CLASS program until such date as the Secretary of Health and Human Services certifies that an affordable national long-term care program for community living assistance services and supports (other than the CLASS Program under title XXXII of the Public Health Service Act (42 U.S.C. 300ll et seq.)) is in effect.  An exception to the above would permit to go forward and take effect upon enactment certain conforming changes regarding Section 6021(d) of the Deficit Reduction Act of 2005.

 Amendment No. 4—Rep. Deutch  (D-FL):  This Amendment would prevent repeal of the CLASS program until 90 days after the date on which the Comptroller General of the United States certifies to Congress that failure to implement the CLASS program established under title XXXII of the Public Health Service Act will not increase State and Federal spending for long-term care under the Medicaid program under title XIX of the Social Security Act.  An exception to the above would permit to go forward and take effect upon enactment certain conforming changes regarding Section 6021(d) of the Deficit Reduction Act of 2005.

 Amendment No. 5—Rep. Deutch  (D-FL):  This Amendment would add a Section 3 “CLASS Program Flexibility” to the bill providing that repeal of the CLASS program could not take effect unless the following have been satisfied:  (1) the Secretary of Health and Human Services submits to Congress a report including a determination made by the Secretary on whether or not the Secretary has the authority to implement the CLASS program under title XXXII of the Public Health Service Act and develop and implement the benefit plans described in subsection (c) of this Amendment which states that not later than 180 days after enactment of this Act, the Secretary shall develop 3 actuarially sound benefit plans as alternatives for consideration for designation as the CLASS Independence Benefit Plan described in section 3203 of the Public Health Service Act that address adverse selection and have market appeal.  (2) if the Secretary determines the Secretary does not have the authority described in (1), the Secretary includes in the report described in such paragraph recommendations for statutory changes needed, and a recommended list of statutory provisions that would need to be waived, to provide the Secretary with such authority. (3) In the case the Secretary determines the Secretary does not have the authority described in (1), not later than 90 days after the submission of such report and recommendations Congress has considered and rejected such recommendations.  An exception to the above would permit to go forward and take effect upon enactment certain conforming changes regarding Section 6021(d) of the Deficit Reduction Act of 2005.  In addition, the Secretary would not have to comply with (2) if the Secretary of Health and Human Services determines that the Secretary has the authority described in (1) above and the Secretary develops the 3 benefit plans described in subsection (c) of this Amendment also described above.  However, if the Secretary determines the Secretary does not have such authority and Congress has not considered and rejected the recommendations described in (2) within 90 days after the submission of such report and recommendations, repeal of the CLASS program cannot take effect and the Secretary shall have the authority to waive the provisions recommended by the Secretary to be waived in (2) above.