OP-ED

The Untimely Death of Long-Term Health Insurance

The Administration’s decision to pull the plug on long-term health insurance in the new healthcare law (so-called Community Living Assistance Services and Support or, as it was known by healthcare insiders, CLASS) offers an important lesson.

As written, the law had three incompatible parts.

First, it required beneficiaries to receive at least $50 a day if they had a long-term illness or disability (to pay a caregiver or provide other forms of maintenance). That $50 was an absolute minimum. No flexibility on the downside.

Second, insurance premiums had to fully cover these costs. In budget-speak, the program was to be self-financing. Given the minimum benefit, that meant fairly hefty premiums.

Third, unlike the rest of the healthcare law, enrollment was to be voluntary. But given the fairly hefty premiums, the only people likely to sign up would know they’d need the benefit because they had or were prone to certain long-term illnesses or disabilities. Healthier people probably wouldn’t enroll.

Yet if the healthier didn’t enroll, the program would have to be financed entirely by the relatively unhealthy — which meant premiums would have to be even higher. So high, in fact, that even the relatively unhealthy wouldn’t be able to afford it.

End of story. End of program.

The lesson: If a public insurance system has minimum benefits and must pay for itself, it can’t be voluntary. Everyone has to sign up.

Or something else has to give — benefits have to be more flexible, or the program can’t be expected to pay for itself.

For example, Medicare and Social Security are mandatory. Everyone effectively signs up through their payrolls. Even so, questions arise about how flexible their benefits have to be if the programs must be self-financing.

So what does this mean for the remainder of the new healthcare law? Its fate hinges on the so-called individual mandate — the requirement that everyone, including younger and healthier people, participate (or pay a fine if they don’t).

Friday’s decision to jettison long-term care offers clear evidence why that individual mandate is so necessary.

Unfortunately, the mandate isn’t popular — because it wasn’t modeled on Social Security or Medicare but based instead on private insurers who’ll want to maximize revenues. It’s also vulnerable to constitutional challenge, largely for the same reason. The Supreme Court will likely decide its fate this term.

Why, oh why, didn’t the Obama administration make life easy for itself and for Americans by choosing the simplest and most efficient system for both primary and long-term health insurance  — Medicare for all?

It didn’t because it wanted to get Republican votes. It got almost none. And now the Republicans are enjoying the prospect of the law being dismembered piece by piece, starting now.

Robert Reich served as the 22nd United States Secretary of Labor under President William Jefferson Clinton from 1992 to 1997. He shares many of his thoughts and columns at Robert Reich, where this post first appeared.

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Jennykrista waughTCoggBob HertzJohn R. Graham Recent comment authors
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krista waugh
Guest

I know there are reasons why CLASS act was junked. My colleagues and I have the same idea (though it seems idealistic) to pass a law that limits the annual rates of companies or health care facilties to cut the costs of long term care
http://www.completelongtermcare.com/resources/class-act.aspx

Bob Hertz
Guest

Commercial insurance is on the whole a decent product sold by decent companies and decent salespersons. Where America has gone off the track is assuming that commercial insurance can be a replacement for normal public functions. We do not make fire departments rely on commercial fire insurance companies. Instead we collectt taxes, and not a heck of a lot of taxes, so that fire departments can serve all citizens regardless of their insurance status. This is not a perfect system. Some taxpayers pay a lot in taxes and will never have a fire. Some taxpayers pay very little, and through… Read more »

TCogg
Guest
TCogg

That insight was very helpful, and I appreciate your point that healthcare should “be measured in terms of relief of pain.” I am not for a system that forces such 85 year olds to extend a life they are ultimately done with. Whom my heart does go out to though are the children from underprivelaged families who can’t afford treatment for their ailments. We should preserve and better the programs in place that give aid to these kinds of patients.

TCogg
Guest
TCogg

The facts continue to astound me. According to the CIA World Factbook, the US is the second highest spender on Healthcare as a percentage of GDP in the world. Yet stats on infant mortality and life expectancy put us below all other developed democracies in the world. No wonder the current administration is trying to fix this. Where I attribute part of the inefficiency and failure of our system is in our society’s loss of perspective regarding the true importance of healthcare. The value given to healthcare is nearly inelastic for all kinds of patients. It doesn’t matter whether someone… Read more »

TCogg
Guest
TCogg

The facts continue to astound me. According to the CIA World Factbook, the US is the second highest spender on Healthcare as a percentage of GDP in the world. Yet stats on infant mortality and life expectancy put us below all other developed democracies in the world. No wonder the current administration is trying to fix this. Where I attribute part of the inefficiency and failure of our system is in our society’s loss of perspective regarding the true importance of healthcare. The value given to healthcare is nearly inelastic for all kinds of patients. It doesn’t matter whether someone… Read more »

MD as HELL
Guest
MD as HELL

i find the phrase “social insurance” both repugnant and arrogant.

‘Insurance” is purchased, not inflicted.

The American Dream is to be left alone in the vast expanse known as freedom.

A clear social mission and a willingness to pay for it? All you have to pay is giving up the notion you should have a clear social mission.

Bob Hertz
Guest

Only a true believer, or a cynic, could accept the laughable concept that the CLASS program would ever reduce the deficit. In the early years of any insurance program, premiums exceed revenue. This enables the insurer to build up reserves for future claims. The Obama team claimed very shamefully that the expected reserves of CLASS would cut the deficit. The same dollars were being claimed for simultaneous purposes. There were other completely bogus assertions involving one part of the health care law effectively paying for another part. Oh, how I longed for a simple assertion of the merit of social… Read more »

John R. Graham
Guest

What does “Medicare for All” have to do with CLASS, which was a long-term-care program? Single-payer systems, like in Canada, do not typically cover long-term care. (I write “typically” because someone will respond that Estonia or some other country that I haven’t studied does, but no country I know does.) Single-payer systems cover hospitalization, physicians, and maybe dental and Rx (and do it very poorly).

MDacid
Guest

Finally somebody says the truth.
In my opinion it’s very important that a country has a functioning health care system in order to avoid social disparity.
But the nature of this law made it impossible to fulfill this. Very hard time for Obama…

MD as HELL
Guest
MD as HELL

Delusional revisionist BS!

There is no choice. You either pay or you pay!

Nothing to keep them from raising the fine. If that doesn’t work a little time in Siberia should soften them up.

Medicare for 25 y/o people. That wouldn’t sell, would it.

The death of ClASS was very timely, and just in time.

Barry Carol
Guest
Barry Carol

“Why, oh why, didn’t the Obama administration make life easy for itself and for Americans by choosing the simplest and most efficient system for both primary and long-term health insurance — Medicare for all?”

Because a single payer system only has 20%-25% support in the U.S., mostly from hard core liberals like Robert Reich.

DeterminedMD
Guest
DeterminedMD

Maybe also that making Medicare the coverage example for universal health care would have made a sizable amount of providers leave health care.

Some of you indignantly retort that will never happen. Oh really, just not in large numbers in a short period of time.

We’ll see who is right by 2014 if PPSCA survives.

Jared
Guest

Reich walks away with exactly the wrong lesson.

If you are a policy expert in the throes of designing a new program, and you realize that it cannot work if it is voluntary–that it must rely on the use of coercive force–then that should be a glaring sign that what you have concocted is immoral and a violation of individual rights. Scrap what you have and start over.

One’s desire to be the savior of the poor and the cause celebre among one’s peers in academia and Washington is not a valid justification for forcing others to follow orders.

BobbyG
Guest

So, majority rule is not your cup of “tea”? The rule of law is in fact “coercive” to a very real degree, both in terms of plebiscite (majority vote) and rights not subject to plebiscite, to those would would rather not be bound by laws they dislike (for whatever reason).

MD as HELL
Guest
MD as HELL

Constitutional principals prevent tyrrany of the majority. If this is such a good idea, then use the same raionale for solving unemployment. Namely, just order everyone with any employees at all to either hire another one or pay a fine.

Should work just as well as healthcare.

Jenny
Guest

Robby, I believe that Jared is not completely wrong but I do agree with you

RH
Guest

Agreed that Republicans now have more leverage to fight against the reform law. The CLASS Act was supposed to reduce the deficit by $70 billion, according to CBO. Now that it’s gone, CBO’s original estimate of ten-year deficit reduction from enactment of PPACA falls from $124 billion to $54 billion, making it easier to construct legislation that delays the PPACA’s main provisions. What this means for the deficit:

http://americanactionforum.org/sites/default/files/PPACA_Delay_White_Paper-Capretta_Holtz-Eakin_Final_10-11-11.pdf