The CLASS Act (YES, You Still Need Long‐Term Care Insurance!!)

We received a notice this morning that the Department of Health and Human Services is closing the CLASS office in Washington D.C. tomorrow (09.23.11) from the actuary who was charged with making the program fiscally sustainable. I truly believe we are better served as a nation to use the Partnership for Long-Term Care as the catalyst to protect the largest number of Americans as fast as possible from the ravages of caregiving.  Consumers I deal with really like the security of knowing their assets will be protected equal to the benefits paid out by their LTC insurance plan if they need to turn to their state for help. See “The Partnership for Long-Term Care” under Laws and Regulations on this site for more information.  More on the CLASS story is on the home page of this site in a November 2, 2011 post.


As I labored 15 hours on Labor Day over this document, I found myself singing Toby Keith’s song “I Love This Bar” except I was singing “I Love This Job” to keep myself going – what a tedious task!! I did it for the seven city tour folks to keep my promise to have the CLASS Act explained in detail and give you a reference document. The bottom line on the whole thing is that the education around the CLASS Act will make more employers aware of the need to plan for long‐term care! That’s exactly what we need to stem the tide of the Medicaid Tsunami coming our way from Medicaid Expansion piled on top of 80 million baby boomers heading into their long‐term care years, at least 95% of them uninsured for this great need. And of course I have to make this analogy – remember the great sales of 2002 when we did all those employee education meetings for the Federal program? 2020 in 43 states, 210 cities in front of 88,449 members of the Federal Family – I still have the stats memorized – but what happened to sales that year? They went off the chart, didn’t they? So let’s be optimistic that the launching of The CLASS Act can generate the same activity…and maybe even better! Baby boomers are eight years older and many have been through a tremendous amount of caregiving pain since 2002. Many of these are employer decision makers.

The Congressional Research Service estimates the participation rate in the current employer-sponsored private LTCI market at only 4%. With the right prospect and the best employee education process, you can expect 10‐50% on voluntary worksite LTCI programs! I hope you will let me teach you those steps in my new worksite book Phyllis Shelton’s WORKSITE Long‐ Term Care Insurance TOOLBOX and my new High‐Impact Worksite Selling System at but in the meantime, the better you know the CLASS Act, the better you will be able to educate your worksite prospects what a wonderful and caring gift they can give their employees (and themselves as management) with a voluntary long‐term care insurance offering. And guess what – every now and then, the management team will pop up and say “This is so important – I think we need to contribute 50% of the premium!”

What Is It?

The Community Living Assistance Services and Supports (CLASS) Act is a provision in Section 8002 of the new health care reform bill (The Patient Protection and Affordable Care Act, Public Law 111‐148) enacted March 23, 2010. The CLASS Act is supposed to provide a small cash benefit of an average of $50 a day with a lifetime benefit period depending on the level of impairment. For example, needing help with four Activities of Daily Living vs. two would result in an increased benefit. This benefit is guaranteed issue and is designed to help people with limitations stay in the community instead of going to a nursing home. The program is supposed to be funded solely by premiums paid by employees who do not opt out via payroll deductions by the employers who choose to participate.


The CLASS Act is established January 1, 2011; however according to the Congressional Research Service (5/3/10), the new law does not specify a date for CLASS program implementation or enrollment. I can just share with you that the think tanks with whom I come in contact with believe it will be 2013 before the program is off the ground.

The writers of the legislation included premium collections in 2011 and 2012 because Section 3203 says the Secretary of Health and Human Services (hereinafter referred to as the Secretary) is supposed to establish the premiums in the first year of the program that ensures solvency for the next 75 years. However, the Secretary is supposed to consult with actuaries and other experts and develop at least three actuarially sound benefit plans to be considered for designation as the CLASS Independence Benefit Plan. (Actuarially sound means there will be enough premiums to pay claims and the 3% administrative fee over the next 75 years.) The Secretary will rely on a 15‐member Class Independence Advisory Council for help with the benefit and premium determinations. Funding is available for that council FY 2011 which begins October 1, 2010 but the Secretary has until October 1, 2012 to announce the specific benefit plan for a period of public comment! So the major dates are:

  • June 21, 2010 (90 days after enactment): the Secretary has to establish a Personal Care Attendants Workforce Advisory Panel to advise the Secretary and Congress on the adequacy of the nation’s supply of personal care attendant workers and access to them, as well as their surrounding workforce issues like salaries and benefits.
  • January 1, 2011: Information about the CLASS program is required to be posted on the National Clearinghouse for Long‐Term Care website (
  • October 1, 2010: Funding is available to implement the Class Independence Advisory Council and assist them in their duties of advising Secretary of actuarially balanced plan and premiums.
  • January 1, 2012: the benefit eligibility assessment is supposed to be set up along with a Protection and Advocacy System in each state and the contracts are supposed to be established with public and private entities to provide counseling services (see Care Coordination below).
  • March 2012 (no later than two years after enactment): each state has to assure the federal government that an adequate infrastructure of personal care attendants is in place, including in rural and underserved areas. Part of this assurance will be that 1) the personal care attendants will not interfere with the consumer‐directed home and community care programs already established by the Medicaid program in some states; and 2) that the entities that employ the personal care attendants won’t interfere with individuals being able to choose which workers they want while still being able to rely on family members for help if they choose to do so.
  • October 1, 2012: the Secretary will announce the benefit plan and premiums for public comment
  • January 1, 2014: The Secretary must begin submitting annual reports on the CLASS program for each fiscal year (total # of enrollees, claimants, amount of benefits paid, fraud & abuse activity, suggestions for improvement and any recommended action to ensure solvency of the program).

Eligibility for the Program

Eligibility is extended to Americans age 18 and up who are actively at work. This means nonworking spouses are not eligible at this time. Premium must be paid for at least five years before benefits can be claimed. In addition, the individual must have earned enough over three calendar years in the first 60 months of enrollment to be credited with at least one quarter of Social Security coverage for each year. In 2010, the minimum income that provides credit for one quarter is $1,120 per So someone could work three hours a week at the 2010 minimum wage of $8.25 in most states and meet the CLASS Act requirement for being actively at work!

Individuals who lapse coverage for more than three months but less than five years after initial enrollment can re‐enroll at attained age premium. They receive credit toward the five year requirement for all months they paid premium before they stopped paying, but regardless of how many months that is, they have to have paid 24 consecutive months before being eligible for benefits. Individuals who lapse longer than five years can re‐enroll at attained age premium but it will be increased by the greater of a penalty amount determined by the Secretary for each month starting with the month they stopped paying premium through the month before their new coverage is effective; OR 1 percent of the attained age premium for each of those months.

Employees are guaranteed acceptance, including employees who already need help with activities of daily living; i.e. wheelchair‐bound employees. Employees who don’t enroll when first eligible can enroll only during an open enrollment period that is specific to the individual (how would you like to administer this program?) and that may not occur more frequently than every two years after the individual waived enrollment. Other then non‐payment of premiums, an individual can’t disenroll except during an open enrollment period.

Benefit Eligibility

The criteria for benefit eligibility is the same as for tax‐qualified plans: a health care practitioner has to certify ADL deficiency that is expected to last at least 90 days, severe cognitive impairment or a similar level of functional limitation as determined by the Secretary of Health and Human Services with one exception: it could be three ADLs, not two. A plan of care is required. Benefit eligibility will have to be recertified at periodic intervals with submission of medical evidence along with records of expenditures.

Enrollees who have applied for benefits are presumptively eligible if they are either facing discharge or within 60 days after discharge from a hospital, nursing facility, intermediate care facility for the mentally retarded or a mental institution. Note that the hospitalization must be for long‐term care. There are a few hundred long‐term care hospitals in the United States.‐Term‐Care‐Hospitals/index.jsp


The benefit says “an average of” $50 per day (as determined based on the reasonably expected distribution of beneficiaries receiving benefits at various benefit levels). An average of in my book means it could be higher or lower. The legislation refers to it as a cash benefit; however, the legislation specifies the types of services it can be used for. Unlike a cash benefit with private long‐term care insurance, recipients of CLASS benefits will have to justify how they spend the money.

Sec. 3205 (c) (1) (B) USE OF CASH BENEFITS – Cash benefits paid into a “Life Independence Account” of an eligible beneficiary shall be used to purchase nonmedical services and supports that the beneficiary needs to maintain his or her independence at home or in another residential setting of their choice in the community, including (but not limited to) home modifications, assistive technology, accessible transportation, homemaker services, respite care, personal assistance services, home care aides, nursing support and is very clear that the benefit can be used to compensate a caregiver who is a family member. [It goes on to say the money can be used for counseling to make medical decisions or formulate necessary forms like advance directives, but care coordination services that don’t cost the beneficiary are included.]

Why so small, you wonder? There’s a widespread mistaken notion around the reports that tell us most people only use 4‐5 hours a day of paid home care, 5 days a week. The reason that’s all they use is because they don’t have the money to pay for more. If they had the money, you would see that time go way up as desperate caregivers would welcome the break. I know this from my clients over the years and several personal experiences with family members.

If the intent of the CLASS Act was to keep people out of nursing homes, the better way to do that would have been a higher daily benefit and a shorter benefit period. People do well to stay out of a nursing home with 8‐10 hours a day of home care, especially if their primary caregiver works. How many baby boomers have you heard say in this economy they can never retire?

And there is zero mention of the CLASS Act coverage ever working with the Long‐Term Care Partnership to provide asset protection when the person can no longer make up the difference between this small benefit and the cost of care and has to turn to Medicaid for help.

Benefits will be deposited into an account that can be accessed via debit card. The benefit will be paid either daily or weekly and can be rolled over from month‐to‐month, but must be used by the end of the benefit year, which starts with the first month in which benefits were received.

CLASS benefits will not count as income and will not affect the beneficiary’s eligibility for any other Federal, state or local assistance program.

If the beneficiary becomes eligible for Medicaid, he or she can keep 5% of the CLASS benefit in addition to the Medicaid personal needs allowance if in a facility (hospital, nursing facility, intermediate care facility for the mentally retarded or an institution for mental diseases. Fifty percent of the benefit can be retained if the beneficiary is receiving Medicaid home and community care benefits. In either case, Medicaid pays secondary to CLASS, and states are not allowed to use CLASS benefits to claim Federal matching funds under Medicaid. (There are some parameters around this such as the Medicaid waiver has to be available statewide and include benefits that are comparable for all recipients of the waiver benefits.) These facility and home care percentages also apply if the beneficiary is receiving services under a Program of All‐Inclusive Care for the Elderly (PACE) program.

CLASS benefits also allow for coordination with any supplemental coverage purchased through an Exchange established under Section 1311 of PPACA (Sec. 3203).


Earlier discussions of this legislation suggested low monthly premiums such as $30 a month. The final version says in Sec. 3203 that the premium is yet to be determined and that it will be based on keeping the program solvent throughout a 75 year period. Premiums can start as low as $5 a month for people below poverty level ($902.50 a month in 2010) and workers who are also full‐time students under age 22. (When the status of full‐time student no longer applies, the worker pays a monthly premium of someone with the most similar circumstances; e.g. the same age who was first eligible in the same year). Even so, the premium can be recalculated in the future and rate increases applied except for enrollees who are age 65, have paid premium for at least 20 years and are not actively employed. The administrative charge can’t be more than 3% and this includes the fees the federal government pays to entities to provide the extensive advocacy and counseling services as described below. If premium increases aren’t a viable way to return the program to solvency, Sec. 3206 says the Board of Trustees may recommend a “temporary moratorium on new enrollments.”

The concern about this program is two‐fold: that it will cost much more than is projected and that it will lull Americans into a false sense of security that they are truly protected for longterm care. A $50‐$75 a day benefit seems very small vs. current costs of $150+ per day for 8 hours of home care, the cost of which could triple in the next 20 years due to the extreme shortage of caregivers. The inflation index for the CLASS Act daily benefit is Urban CPI, which averages around 3.5% per year. [Sec. 3205 (b) (1) (B)] Also, employers don’t have to offer it and even when they do, employees can opt out per the “Alternative Enrollment Procedures” section as follows:

Sec. 3204 Enrollment and Disenrollment Requirements

(2) Alternative Enrollment Procedures ‐ The procedures established under paragraph (1) shall provide for an alternative enrollment process for an individual described in subsection (c) in the case of such an individual‐‐

(A) who is self‐employed;
(B) who has more than 1 employer; or
(C) whose employer does not elect to participate in the automatic enrollment process established by the Secretary.

Premiums will vary by age at enrollment and by year of enrollment. However, the head actuary at CMS (the government branch that runs Medicare and Medicaid) thinks that the average premium for the entire program should be more like $240 per month, although premiums will vary by age at enrollment and by year of enrollment.* By contrast, the average premium for private LTCI is about $180 in the individual market and more like $90 in the worksite market.

To compare private LTCI premiums to CLASS Act premiums, you should look at a plan for a single applicant at age 40, 50, 60 and 70 with a CPI inflation benefit (or at least a 3% compound no max), first day coverage for home care, $50 daily benefit, and an unlimited benefit period. Then average those rates. Then look at the same plan with a preferred health discount.

I just can’t see employees accepting a high level of premium for so little benefit. We know how hard it is to educate employees to buy private long‐term care insurance for much less premium than the head actuary at CMS is quoting. $3,000,000 for each of fiscal years 2011‐ 2015 was approved as part of the CLASS Act for the National Clearinghouse for Long‐Term Care Information ( to continue consumer education efforts. However, instead of these dollars going to continue the Own Your Future program, there’s a good chance they will be used to provide consumer education about the CLASS Act.

Care Coordination

Each person on claim is supposed to be assigned a care advocate who will:

  1. provide information about the appeals process;
  2. assist with benefit recertification and completion of records of expenditures; and
  3. to ensure there is no conflict of interest between the advocacy counselors and any other entity that provides services.

Each person on claim is also to be assigned an “advice and assistance counselor” who will provide information regarding:

  1. accessing and coordinating long‐term care services in the most effective setting (this includes providing a list of available service providers that can meet the needs of the claimant);
  2. development of a plan of care
  3. possible eligibility for other benefits and services;
  4. programs and services established under the Assistive Technology Act of 1998;
  5. available assistance with decision making concerning medical care including help with formulating advance directives.

Solvency, Fraud and Abuse

The Secretary will rely on an annual report by the Health and Human Services Inspector General related to the overall progress of the CLASS program and existence of waste, fraud or abuse. In addition to the CLASS Independence Advisory Council, the CLASS Act also sets up a Board of Trustees that invests and manages a trust fund called The CLASS Independence Fund within the U.S. Department of Treasury. The Secretary of the Treasury is required to invest and manage this fund in the same manner as the Federal Supplementary Insurance Trust Fund under Medicare (the fund that provides Part B of Medicare and the Medicare Prescription Drug Program). For a description of how this fund can be invested, go to and for its current state, go to this Social Security report . The Secretary of HHS will also rely on both the Board of Trustees and the CLASS Independence Advisory Council to ensure that enrollee premiums are adequate to ensure the financial solvency of the program. PPACA explicitly prohibits taxpayer funds from being used for payment of benefits. This means federal funds other than premiums by CLASS enrollees and interest earnings on those premiums are not to be used.

Tax Treatment

Sec. 3210 simply says “The CLASS program shall be treated for purposes of the Internal Revenue Code of 1986 in the same manner as a qualified long‐term care insurance contract for qualified long‐term care services.” So just like tax‐qualified LTCI policies, benefits are taxfree, whether or not an employer contributes to the premium, and the age‐based premium amounts are eligible for a tax deduction for self‐employed people or can be paid out of a health savings account.

Conflicting Messages

The conflicting message I see in two sections of the CLASS Act, references are made to keeping the premiums in the fund and investing them to keep the program solvent.

1) Sec. 3206 (a) (1) says the money in the CLASS Independence Fund must be held for investment on behalf of individuals enrolled in the program.

2) Sec. 3203 says that the Secretary will look at an actuarial analysis of the program after 10 years and set the premiums for all enrollees at whatever they have to be for the reserves to not decrease that year. Only at such time as the Secretary can demonstrate that yearly expenses can be financed by premiums and interest credited to the fund can the Secretary decrease the required amount of reserves.

On the other hand, the Congressional Budget Office (CBO) and CMS provided federal budget impact statements that say the CLASS Act will reduce federal deficits in the short run. The estimates are different based on differences of opinion about the participation rate.

CBO estimates a deficit reduction of $70 billion between 2010 and 2019, based on a 3.5% participation rate.* Only $2 billion of that represents savings to the Medicaid program. CMS thinks the participation will be only 2% and therefore projects a lower savings of $38 billion over 10 years.** Either way, it sounds like because CLASS requires premiums to be paid for the five year time period before any benefits can be paid out, Congress looked at it as a revenue generator to help fund the overall health care reform bill. So how can the premiums stay in the CLASS Independence Fund and earn interest and be used to reduce Federal deficits?

I think they will be sadly disappointed when they see how few employees will accept it. Most of them will likely be people who have health issues, which will drive up the number of claims which ultimately leads to the program being underfunded. Therefore I think it will fall way short of the revenue generator it is expected to be.

*Congressional Budget Office, Letter to Senator Harry Reid from Douglas Elmendorf, CBO Director, dated March 11, 2010.

**Foster, Richard S. “Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as amended, Department of Health and Human Services, CMS Office of the Actuary, April 22, 2010 memorandum, pp. 14‐15. ; or

The final version of The CLASS Act follows this article.

Phyllis Shelton
September 7, 2010

I’d like to thank Janemarie Mulvey and Kirsten J. Colello for the wonderful job they did to make the CLASS Act actually easy to understand in their May 3, 2010 Report 7‐5700 for Congress entitled “Community Living Assistance Services and Supports (CLASS) Provisions in the Patient Protection and Affordable Care Act (PPACA)”.

Click here to read the full text of the CLASS Act