I’m generally in favor of what Obamacare is trying to do – enable insurance companies to tamp down inflation expectations in the health care market, thus driving down costs long term.
But the legislation overreached in a couple of places, and the big one was the CLASS Act, which was Ted Kennedy’s last pet project. The CLASS Act created voluntary long-term care insurance, and it was one of the big areas of concern in the Office of the Actuary’s final critique.
I leave the pros and cons to Ezra Klein’s Wonkbook, only adding the Office of the Actuary had essentially the same critique as the CBO:
The Congressional Budget Office estimates (pdf) that the act would reduce the deficit by $72.5 billion through 2019. That said, the CBO also warns that after 2020, costs will start to outstrip premiums by enough to add to the deficit in the long term more than it subtracts from it in the short run. The CBO notes, however, that the Department of Health and Human Services has wide latitude in changing premiums and average benefits, which could keep the program solvent.
The problem is adverse selection. Only people who know the coverage will be a good deal will buy. (That is, the only buyers will be the people who know they’ll need long-term care, and they will only buy as long as it’ll cost less than the straight-up transaction with health-care providers.) There’s a five-year waiting period before you can file a claim, but that’s not enough to help.
Now the easiest way to solve an adverse selection problem is to mandate coverage. If everybody has to play bring down the average cost. And Klein points to this SCAN Foundation applet that lets you model a long-term care plan. It shows how important adverse selection is to insurance costs.
I ran two fairly generous scenarios – lifetime benefit, no deductible or co-pay. One had mandatory coverage. Every employed person older than 18 had to pay into it. The cost was $100.47 per participant per month. That’s clearly affordable coverage across the working population. If it was assessed as a flat tax on incomes, like Medicare, it would be well under 1% per month.
The other scenario had one change. Coverage was voluntary, so it was subject to adverse selection. It would cost $550.31 per month, or $6,600 per year. So adverse selection raises premiums five-fold. I don’t think that even begins to address the public policy question the program is meant to solve.
Anyhow, I don’t have any beef with the federal government creating long-term care, but I would like to see it do a better job on the insurance it currently administers – Medicare and Social Security – before it added a new one.