The Community Living Assistance Services and Supports (CLASS) program would provide persons with functional limitations cash assistance to help them remain living in their communities. CLASS is financed solely by enrollee premiums, with no federal subsidy. The program is unsustainable and will add substantially to the budget deficit in the coming years. Without major program changes, CLASS will face a financial crisis that could lead to a financial bailout rivaling anything we have seen to date.
Because CLASS prohibits underwriting and charges the same premium to enrollees of the same age regardless of their health status, the program will primarily attract people who are most likely to need benefits—a problem known as adverse selection.
To keep the CLASS Independence Fund solvent, premiums will rise sharply as healthier people refuse coverage or drop out of the program. That will create a death spiral of rising premiums and declining participation that will cause CLASS to fail.
Despite remaining solvent, CLASS will generate growing budget deficits. Premium receipts will not keep pace with program outlays, even though no benefits will be paid for the first five years.
Warnings about defects in the design of CLASS have been raised by CBO, the CMS chief actuary, the President’s Fiscal Commission, the American Academy of Actuaries, and the Secretary of Health and Human Services. Proposed changes may be too little too late.
Repeal is the only logical alternative. It is far better to repeal a defective program than to let it repeal itself through fiscal failure.
Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI.