This week the Obama Administration formally abandoned the CLASS Act, a component of the ACA designed to provide long-term care. Robert Reich explains why it was doomed from the start:
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.
The failure of CLASS has led to a flurry of proposals for alternatives to long-term care insurance. Some want a purely private sector solution. Maybe a new Rube Goldberg financing scheme could be implemented as a part of 401(k) plans. Perhaps Wall Street could sell disability derivatives and ability default swaps, engineering away the “risk of non-use” that keeps people from enrolling in programs like this.
In thinking about these proposals, my mind turns back to Robert Bork’s Antitrust Paradox. For Bork, antitrust law was “at war with itself” because it professed to promote simultaneously 1) a cutthroat competitive process that would encourage firms to maximize efficiency and 2) the threat of penalties for any firm that succeeded in being so efficient that it outcompeted all or nearly all of its rivals, if its efforts to do so stepped over the line into monopolization. Of course, one could resolve the so-called paradox if one recognized that the Sherman and Clayton Acts were passed not merely to maximize “consumer welfare,” but also to prevent concentrations of economic power from exercising excessive influence. But as the judicial interpretation of antitrust law took on more of the assumptions of the Chicago school, the paradox loomed ever larger in efforts to characterize antitrust as futile in an era of consolidation.
So what’s the CLASS paradox? There are actually several. Those who are not so well off (such as the 50% of American workers who made less than $26,000 last year) are likely to be the most in need of the program, but have the least amount to spare for premiums. Those in the top 1% (that is, those who make over $506,000 annually) will probably want to use their own savings and investments, rather than an insurance program, to pay for LTC. That leaves a middle 49%, making between $26,000 and $506,000, who are the most likely participants. But among that group, the more healthy, well-connected, wealthy, and younger you are, the less likely you are to buy in because the benefits are speculative, distant, and/or unneeded. And by and large, the sicker, more isolated, poorer, and older you are, the less likely you are to have the resources to participate now.
The question finally becomes: are we serious about social insurance in this country, or are we content with treating the very frail elderly like possessions in the home, to be insured as need and whim allow? The solution to the LTC crisis is a right to basic care and residence, funded by general tax revenues. Sure, we can have extensive and difficult debates about the obligations of individuals and families to contribute to long-term care, particularly in order to make better-than-basic options available. But the general focus needs to be on redistribution from the currently well-to-do to the currently needy, rather than an ownership society mirage of individuals anticipating distant futures that may never materialize (and that many or even most can’t very well prepare for even if they do materialize).
We should also consider funding more of Medicare out of general tax revenues, rather than from dedicated payroll taxes and premiums. Richard Kaplan has argued that this shift could better serve both equity and cost-control goals:
The use of general tax revenues, moreover, would make clear that financing the health care needs of the Medicare population is a societal undertaking, much like the Medicaid program, which targets low-income individuals of any age. At a minimum, eliminating the separate taxes for Medicare would simplify the lives of employees and employers alike and would additionally reduce the cost to employers of adding new employees. Perhaps changing the financing of the Medicare program along the lines just suggested might also make its beneficiaries less inclined to protest every proposed programmatic restriction and to understand that their benefits are indeed coming from a communal funding source. The resulting change in budgetary debates can only be salutary for the republic as a whole.
Health care finance in general must adopt to a world of massive and growing income and wealth inequality. From 1947-1980, when Americans’ incomes more or less grew together at the same rate, there was some justification for modeling the purchase of long term care as an investment that individuals would manage one by one, to reflect their tastes and preferences. Since 1980, the divergence in fortunes has become so great that such choices far more reflect ability-to-pay rather than taste for risk or comfort. It is unfair to expect struggling middle and lower class individuals to continue with such burdens. And to the extent tough choices need to be made, they ought to better reflect the collective wealth of the nation, rather than the tragic choices that can befall an individual forced to choose between preparing for bleak penury in old age or investing in present purchases that could make that neediness less likely.