A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Notes

10/14/2011

  1. Memo from Richard S. Foster, CMS Office of the Actuary, April 22, 2010, “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act,’ as Amended.”

  2. The initial plan was to set up an independent CLASS Office in HHS. Secretary Sebelius sent letters to key members of Congress alerting them about the organizational change being contemplated. (See Appendix B for copies of the letters.) It was subsequently decided for budget and management reasons to establish the CLASS Office within the Administration on Aging.

  3. This occurs for two reasons: first, persons who are likely to go on claim early are unlikely to enroll in an option that pays a small benefit during the initial years of the policy. Second, even if the CLASS Partnership option is selected against, the smaller payouts and three year duration of the benefit significantly bound the actuarial risk.

  4. There is a colorable argument that the Secretary could establish active employment as an ongoing requirement during the vesting period. Upon stating the four conditions for enrollment, including the active employment requirement, section 3204(d) states that “[n]othing in this title shall be construed as requiring an active enrollee to continue to satisfy” one of the four conditions, which concerns taxable income. 42 U.S.C. § 300ll-3(d). In light of that provision, one might argue that the Secretary may require active enrollees to continue to satisfy the other three conditions, including active employment status. However, for the reasons discussed above, we have concerns about whether doing so in order to adopt a minimum earnings requirement for the vesting period would survive a challenge.

  5. Section 3203(b)(1)(B) authorizes the Secretary to adjust premiums if certain types of information show that an adjustment is necessary to ensure the solvency of the program. Id. § 300ll-2(b)(1)(B). We do not consider these adjustments in our analysis of this feature.

  6. The CLASS Act provides that the per day average benefit amount will increase by CPI-U in years subsequent to the first year in which enrollees receive benefits. 42 U.S.C. § 300ll-4(b)(1)(B). For ease of reference, we refer to the $50 per day average benefit based on the assumption that it takes into account this mandatory statutory increase.

  7. Of course, the plan would still have to meet the average $50 per day requirement. However, it could do so, even with a $2 per day limit, by raising the full benefit by a sufficient amount.

  8. See id. § 300ll-3(g) (requiring the Secretary to establish enrollment procedures for individuals who opted out of enrolling when they were first eligible, and specifying that the individuals’ enrollment periods may not occur more frequently than biennially).

  9. Because the phased enrollment process would prevent otherwise statutorily-eligible individuals from enrolling immediately in the CLASS program, there is a significant likelihood that such a process would incur a legal challenge.

  10. Advice and assistance counseling includes the provision of information about assistive technology, accessing and coordinating services and supports, and accessing other Federal benefit programs for which a beneficiary may be eligible. Id. § 300ll-4(e).

  11. Another proposed family of options, the Enhanced CLASS plan plus the Scheduled Increasing Benefit plan, was also presented. The analysis of each of the individual plans and the overall family of plans containing those options reaches the same conclusions as the analysis above. Therefore, we do not present that analysis separately.

  12. For clarity, we perform the computations for the 4+ ADL benefit level in footnote 13.

  13. The yearly increase amount for the benefit level corresponding to 4+ ADLs is $7.80. This would result in a daily benefit of $39.60 for a beneficiary who claims benefits in year seven of enrollment and $55.20($24 + (7.80 * 3)) in year nine. The maximum daily benefit for a beneficiary with 4+ ADL limitations is $180. All figures are subject to increase by the 3 percent ACI factor in each subsequent year.

  14. We note that the proposed waiting period might also be understood to raise civil rights concerns under section 504(a) of the Rehabilitation Act of 1974, which applies to federally conducted programs. That section provides, in relevant part, that “[n]o otherwise qualified individual . . . shall, solely by reason of her or his disability, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance or under any program or activity conducted by any Executive agency [.]” 29 U.S.C. § 794(a). Although section 504 does not explicitly address insurance programs, section 504’s prohibition has been interpreted in a manner similar to the prohibition on disability discrimination in the Americans with Disabilities Act (ADA), 42 U.S.C. §§12101 et seq. See, e.g., Bragdon v. Abbott, 524 U.S. 624, 631 (1998) (holding that the ADA’s and Rehabilitation Act’s discrimination prohibition should be interpreted similarly). Section 501(c) of the ADA explicitly provides that the Act does not prohibit entities that administer bona fide insurance or benefit plans from underwriting, classifying, or administering risks. 42 U.S.C. § 12201(c). Those actions, however, must be based on evidence that distinctions are necessary to ensure a plan’s viability or to prevent untenable premium increases or benefits decreases, and may not be used as “subterfuge” to get around the ADA’s nondiscrimination provisions. Id.

    In its guidance on the applicability of the ADA to employer-provided benefits, the Equal Employment Opportunity Commission (EEOC) stated that not all health-based distinctions are disability-based. See EEOC Compliance Manual, Chapter 3: Benefits (Oct. 3, 2000), available at http://www.eeoc.gov/policy/docs/benefits.html#III.Disability-Based Distinctions. Generally, a health-related distinction in a benefit plan is not disability-based if it broadly applies to a multitude of dissimilar conditions, and constrains both individuals with disabilities and individuals without disabilities. Id. Of particular relevance here, the EEOC provided, as an example of a program that would not involve a disability-based distinction, a long-term disability plan that placed a six-month waiting period for all pre-existing conditions. Id. The waiting period would apply to all individuals who have a pre-existing health condition, regardless of whether it leads to a disability. By contrast, a health-based pre-existing condition requirement that singled out a particular disability (e.g., HIV infection), a discrete group of disabilities (e.g., cancers), or disability in general (all individuals with disabilities) would be a disability-based distinction.

    In light of the EEOC guidance, we believe that a reasonable argument can be made that the proposed CLASS plan waiting period does not involve a disability-based distinction and thus does not implicate the Rehabilitation Act. The proposed waiting period broadly applies to a multitude of dissimilar conditions and would be in place for individuals with health conditions that lead to disabilities, regardless of whether the individuals eventually develop those disabilities. In any event, even if the waiting period were understood to involve a disability-based distinction, the waiting period would be permissible if, consistent with section 501, the CLASS program could show that it is necessary to ensure the plan’s viability or to prevent untenable premium increases or benefit decreases; a showing that the waiting period is necessary to ensure the fiscal solvency of the program would be sufficient.

  15. One could counter, however, that that provision has no bearing on the Secretary’s authority under the CLASS Act. On this view, while legislative action might be necessary to require the Secretary to freeze enrollment, it would not be necessary to authorize the Secretary, in her judgment, to freeze enrollment.

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