A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Section One: Legal Analysis of Plan Features

10/14/2011

  1. BASIC CLASS PLAN

    The Basic CLASS Plan meets the requirements in the CLASS Act, 42 U.S.C. § 300ll-300ll-9. Under the Act, an active enrollee becomes an eligible beneficiary if, at the time the individual is determined to have a qualifying functional limitation or cognitive impairment, the individual: 1) has paid premiums for at least five years; 2) has earned, during at least three calendar years of the first sixty months in which the individual has paid premiums, at least the amount necessary to earn one quarter of Social Security coverage; and 3) has paid premiums for twenty-four consecutive months, if the individual has had a lapse in premium payments for more than three months. Id. § 300ll-1(6)(A). The plan provides eligible beneficiaries with the three-part benefit package of a cash benefit, advocacy services, and advice and assistance counseling. Id. § 300ll-4(b)(1)-(3). The cash benefit also tracks the statutory language: the benefit amount meets the prescribed $50 per day average, there are between two and six benefit levels that vary with level of functional ability, benefits are paid on a daily or weekly basis, and benefits are not subject to any lifetime or aggregate limits. Id. § 300ll-2(a)(1)(D).

    To be clear, the actuarial models based on Basic CLASS assumed a fixed 2.8 percent rate of inflation for the cash benefit. As we understand it, the cash benefit under Basic CLASS will increase by the percentage increase in the consumer price index for all urban consumers (CPI-U). This is significant because section 3205(b)(1)(B) sets the percentage increase in the CPI-U as the minimum amount by which the cash benefit must increase each year. Id. § 300ll-4(b)(1)(B).

  2. MODIFIED CLASS PLAN

    The Modified CLASS Plan differs from the Basic CLASS Plan in three material respects. First, it increases the amount of the minimum earnings requirement. Second, it increases the duration of that requirement. And third, it raises premiums annually according to a schedule set at the time of enrollment. While there is a plausible statutory basis for the proposed minimum earnings requirement, we have concerns that there could be a successful challenge to this interpretation. While such concerns alone would not preclude the implementation of a program with this requirement, it is appropriate that they be considered in conjunction with information about whether the program meets the statutory requirements of solvency in making decisions about the CLASS program. With respect to the schedule of premium increases, we believe that the Secretary may reasonably interpret the statute to authorize such a schedule.

    Minimum Earnings -- Amount. Section 3202 of the CLASS Act provides, in relevant part:

    The term ‘eligible beneficiary’ means any individual who is an active enrollee in the CLASS program and . . . [among other things] has earned, with respect to at least three calendar years that occur during the first 60 months for which the individual has paid premiums for enrollment in the program, at least an amount equal to the amount of wages and self-employment income which an individual must have in order to be credited with a quarter of coverage under section 213(d) of the Social Security Act for the year.

    Id. § 300ll-1(6)(A)(ii). The most straightforward reading of this provision is that in order to become an eligible beneficiary, an active enrollee in the CLASS program must, among other things, earn at a minimum an amount sufficient to qualify for one quarter of coverage under the Social Security Act for three years. The current amount of earnings necessary to be credited with one quarter of coverage for Social Security is approximately $1,200. See Quarter of Coverage, http://www.ssa.gov/oact/cola/QC.html (last visited Oct. 12, 2011). Thus, under the statute, an active enrollee who earned about $1,200 for at least three calendar years during the first sixty months in which he or she paid premiums would meet the earnings requirement for eligible beneficiary status in the CLASS program.

    It is possible to read the statutory language in a way that authorizes the Secretary to adopt a minimum earnings requirement of $12,000. Section 3202(6)(C) provides, in relevant part, that “[t]he Secretary shall promulgate regulations specifying exceptions to the minimum earnings requirements . . . for purposes of being considered an eligible beneficiary for certain populations.” Id. § 300ll-1(6)(C). This exception language could be interpreted to allow the Secretary to raise the minimum earnings requirement for certain populations. She could do so for specific populations, such as those who are not students or not low-income, or for all populations; to support the latter conclusion, the term “certain populations” would be interpreted not as circumscribing the Secretary’s authority, but instead only as clarifying the Secretary’s authority to make distinctions among populations.

    Reliance on the Secretary’s exceptions authority could be challenged on the ground that the interpretation is in tension with the natural reading of the statutory language. An “exception” is “a case to which a rule does not apply,” Webster’s New Collegiate Dictionary 432 (9th ed. 1985), or “something that is excluded from a rule’s operation.” Black’s Law Dictionary 604 (8th ed. 2004). In this case, the relevant rule would be that an active enrollee must meet the specified minimum earnings requirement. Though requiring an individual to earn more than the statutory minimum would technically meet the definition of making an exception to the rule, one would ordinarily interpret the authority to make exceptions to a minimum earnings requirement as the authority to waive or lessen the requirement, not to raise it--that is, the authority to say that the requirement need not be met, not that the requirement may be made more stringent. See Edward C. Liu, Cong. Research Serv., 7-5700, Authority of the Secretary of HHS to Make Exceptions to Minimum Earnings Requirement for Eligibility Under the CLASS Act (2011) (reaching a similar conclusion).

    There is a related, alternative way of achieving a type of higher minimum earnings requirement. Instead of focusing on minimum earnings per se, this alternative would focus on the definition of “actively employed.” Only individuals who are “actively employed” may enroll in the CLASS program. Id. § 300ll-3(c). The term “actively employed” refers to an individual who “is reporting for work at the individual’s usual place of employment or at another location to which the individual is required to travel because of the individual’s employment . . . and is able to perform all the usual and customary duties of the individual’s employment on the individual’s regular work schedule.” Id. § 300ll-1(2). It could be argued that the Secretary has authority to define the term “actively employed” further, setting forth, for example, a minimal weekly wage or work hours requirement. Though the Supreme Court has rejected agencies’ attempts to define terms further when the statutory definitions are “unusually detailed,” INS v. Hector, 479 U.S. 85, 88 (1986), or are “explicitly and comprehensively defined . . . by including . . . discrete definitions,” Carcieri v. Salazar, 129 S. Ct. 1058, 1066 (2009), it could be argued that those cases are inapplicable here because the CLASS statute’s definition of “actively employed” is minimal. By defining the term “actively employed” to require a minimum level of wages or work hours, the Secretary may effectively institute a minimum earnings requirement for individuals enrolling in the program.

    There could, however, be a successful challenge to the Secretary’s authority to adopt this alternative. Beyond the issue of whether the Secretary has authority to add terms to the definition of “actively employed,” concerns about tension with the statutory purpose to provide opportunities to purchase long-term care insurance to a very broad group of individuals, would apply to the heightened enrollment conditions. Yet the more detailed definition of “actively employed” may be on a firmer legal footing than a $12,000 minimum earnings requirement. Insofar as the active employment requirement applies only as a condition of enrollment, and not as an ongoing requirement during the vesting period,4 it would be reconcilable with the minimum earnings provision, which applies only during the vesting period.

    Minimum Earnings -- Duration. The CLASS Act also specifies a time component of the minimum earnings requirement. Section 3202(6)(A)(ii) requires that an eligible enrollee earn the stated amount for “at least 3 calendar years during the first 60 months for which the individual has paid premiums for enrollment in the program[.]” Id. § 300ll-1(6)(A)(ii). Modified CLASS would extend the duration of the minimum earnings requirement from three calendar years to five years. The argument that the proposed five-year requirement is legally authorized focuses on the same statutory provision as the arguments in favor of the $12,000 minimum earnings amount: the provision authorizing the Secretary to create exceptions to the minimum earnings requirement. Id. § 300ll-2(6)(C). Because the analysis of that provision in the foregoing section applies equally in this context, we have reached the same conclusion for the five-year minimum earnings requirement. Although there is a plausible statutory basis for the requirement, we have concerns that there could be a successful challenge to this interpretation.

    Fixed Premium Increase -- Schedule and Amount. Modified CLASS would adopt a premium schedule in which enrollees’ premiums rise according to a fixed rate over time. We believe that the Secretary may reasonably interpret the statute to authorize such a schedule.

    Section 3203 is the principal section of the statute setting forth requirements applicable to the premiums in the CLASS program. Id. § 300ll-2. Section 3203(a)(1)(A)(i) provides, in relevant part, “Beginning with the first year of the CLASS program, and for each year thereafter . . . , the Secretary shall establish all premiums to be paid by enrollees for the year based on an actuarial analysis of the 75-year costs of the program that ensures solvency throughout such 75-year period.” Id. § 300ll-2(a)(1)(A)(i). Section 3203(b) further provides, with limited exceptions inapplicable here, that “the amount of the monthly premium determined for an individual upon such individual’s enrollment in the CLASS program shall remain the same for as long as the individual is an active enrollee in the program”5Id. § 300ll-2(b)(1)(A) (emphasis supplied). We assume that under Modified CLASS, the premium schedule would be based on an actuarial analysis of the seventy-five-year costs of the program that ensured solvency throughout the seventy-five-year period. The question raised by the plan’s design is whether the proposed premium schedule, which rises at a fixed rate over time, satisfies the requirement that the amount of the monthly premium remain “the same.”

    The language requiring that the monthly premium “remain the same” during an individual’s active enrollment is unclear. One reading of the statute is that the amount of the monthly premium must be the identical amount every month throughout the individual’s active enrollment. In other words, if the monthly premium is $75 when an individual enrolls, then the monthly premium must remain $75 throughout the period of active enrollment. Under this interpretation, the CLASS program could not adopt a premium schedule in which the premium amount rises over time.

    There is an alternative, reasonable interpretation of the statutory provision. Under Modified CLASS, the monthly premiums rise over time, but all present and future premiums are set at the time of enrollment and do not change thereafter. In other words, when an individual enrolls in the CLASS program, he or she would receive a premium schedule that would remain in effect for as long as the individual is an active enrollee. Because the schedule is fixed or unchanging, one could reasonably argue that “the amount of the monthly premium determined for an individual upon such individual’s enrollment” remains “the same.”

    In Chevron, the Supreme Court held that, if a statute is silent or ambiguous, it will defer to the agency’s interpretation of the statute, so long as it is reasonable. See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-43 (1984). Because of our conclusions that the statutory provision requiring premiums to remain the same is ambiguous and that it is reasonable to interpret the provision as requiring only that the monthly premium be determined and fixed at the time of enrollment, we believe that the Secretary has discretion to interpret the statute as authorizing the proposed premium schedule.

  3. ENHANCED CLASS PLAN

    The Enhanced CLASS Plan builds on the features of the Modified CLASS Plan. It adopts the three features analyzed above of the Modified CLASS Plan. In addition, Enhanced CLASS features two levels of cash benefit scaled to levels of functional ability. The cash benefit would decrease in amount after five claim years. Furthermore, the Enhanced CLASS Plan’s enrollment process would be conducted in phases, with individuals employed by large employers being given the initial opportunity to enroll.

    Minimum Earnings -- Amount. For an analysis of this feature, see supra pp. 29-30.

    Minimum Earnings -- Duration. For an analysis of this feature, see supra pp. 30-31.

    Fixed Premium Increase -- Schedule and Amount. For an analysis of this feature, see supra pp. 31-32.

    Two-Tier Benefit Structure and Decreased Benefit After Five Years. The Enhanced CLASS Plan would establish two benefit levels, one for eligible beneficiaries unable to perform two or three activities of daily living (ADLs) and one for beneficiaries unable to perform four or more ADLs. Additionally, the plan would pay 100 percent of the daily benefit for an initial period (e.g., five claim years) and then only twenty percent of the daily benefit amount for the remainder of the beneficiary’s lifetime. We believe that the Enhanced CLASS Plan may adopt the proposed benefit structure if the benefits meet the minimum required benefit amount discussed below.

    Under the CLASS statute, a benefit plan must include a “benefit trigger for provision of benefits that requires a determination that an individual has a functional limitation” such that an individual (1) is unable to perform at least two or three ADLs without substantial assistance from another individual; (2) requires substantial supervision to protect the individual from health and safety threats due to substantial cognitive impairment; or (3) has a level of functional limitation similar to that described in subparagraphs (1) or (2). 42 U.S.C. § 300ll-2(a)(1)(C). ADLs are defined as eating, toileting, transferring, bathing, dressing, and continence, as specified in the Internal Revenue Code. Id. § 300ll-1(3). The plan must pay a cash benefit that satisfies the following requirements. First, “[t]he benefit amount provides an eligible beneficiary with not less than an average of $50 per day (as determined based on the reasonably expected distribution of beneficiaries receiving benefits at various levels).” Id. § 300ll-2(a)(1)(D)(i). Second, “[t]he benefit amount is varied based on a scale of functional ability, with not less than 2, and not more than 6, benefit level amounts.” Id. § 300ll-2(a)(D)(ii). Third, “[t]he benefit is paid on a daily or weekly basis.” Id. § 300ll-2(a)(1)(D)(iii). Fourth, “[t]he benefit is not subject to any lifetime or aggregate limit.” Id. § 300ll-2(a)(1)(D)(iv).

    As an initial matter, setting two benefit levels tied to two different ranges of limitations is authorized by the statutory requirement that there be at least two and not more than six benefit level amounts based on a scale of functional ability. Id. § 300ll-2(a)(1)(D)(ii). The authority to establish an initial benefit for a finite period and a decreased benefit, at twenty percent of the initial rate, to be paid for the remainder of the beneficiary’s lifetime could be problematic. Its legality depends, in part, on the amount of the proposed benefits. At all times--including when individuals are receiving the initial reduced benefit--the daily cash benefit must meet the $50 per day average.6 To be clear, the statute does not require that any one beneficiary receive, on average, $50 per day during the period of beneficiary status. Rather, it requires that, on any given day, the sum total of all beneficiaries receive, on average, $50 per day. In other words, whether the $50 per day average is met is “determined based on the reasonably expected distribution of beneficiaries receiving benefits at various benefit levels.” Id. § 300ll-2(a)(1)(D)(i).

    Assuming that that $50 per day average requirement were met, the question remains whether the reduced benefit meets the requirement that “[t]he benefit is not subject to any lifetime or aggregate limit.” Formally, there are no “lifetime” or “aggregate” limits, as those terms are normally understood. Undefined in the statute, in the insurance context, “lifetime limit” refers to a cap on the total amount of benefits, either overall or for a specific set of services, that a plan will pay for a beneficiary over the beneficiary’s lifetime. See Glossary, p. 11, HealthCare.gov, http://www.healthcare.gov/glossary/04262011a.pdf (last viewed Sept. 28, 2011). “Aggregate limit” means the total dollar amount that a plan will pay for a beneficiary within a specified period (e.g., a plan will pay no more than $50,000 toward a beneficiary’s care during a calendar year period ). See, e.g., Glossary of Insurance and Risk Management Terms, International Risk Management Institute, Inc., http://www.irmi.com/online/insurance-glossary/terms/a/aggregate-limit-of-liability.aspx (last viewed Oct. 6, 2011). Although the Enhanced CLASS Plan would reduce a beneficiary’s daily benefit amount by eighty percent after a specified period of time, it would pay some benefits, free from any predetermined capped amount, throughout a beneficiary’s lifetime. It can be argued that such an approach does not impose aggregate or lifetime limits.

    There is, however, a sound argument that the proposed benefit reduction violates the no lifetime or aggregate limit provision. The argument would be that paying only twenty percent of the full daily benefit to a subset of the period of beneficiary status is effectively an aggregate or lifetime limit. On this view, the restriction of the full benefit to a limited period of time sets caps, or an aggregate limit, on the amount that a beneficiary may receive over time; the fact that it does so by setting a reduced percentage, rather than an absolute dollar value, is not a sufficient answer. If a plan may reduce the amount paid after a set period of time--for example, by paying $1 or two percent after the first three years7--then it can render the aggregate or lifetime limits prohibition virtually meaningless. Moreover, reducing the benefit over time, rather than starting with a lower percentage of the daily benefit amount and increasing it to the maximum, appears contrary to the purpose of the CLASS Act. The Act seeks to provide eligible individuals with the opportunity to purchase an affordable long-term care insurance plan that would provide meaningful cash benefits to help them to obtain the services and supports they need to live independently in the setting of their choice. Reducing the plan’s payments as individuals are likely to grow sicker runs counter to the statutory purpose.

    Notwithstanding the forceful challenge that may be made to the proposed benefit structure, in light of the relevant statutory provision and the deference ordinarily accorded to the agency in interpreting such provisions, we conclude that the proposed benefit structure might be permissible. We caution that the greater the reduction in benefits over time, the more likely a challenge to the reduction as an impermissible end-run around the lifetime and aggregate limit prohibition could succeed.

    Phased Enrollment. The Enhanced CLASS Plan would permit enrollment of different categories of individuals in phases. In particular, individuals working for large employers, who employ a specified minimum number of employees, or some subset of those individuals, would be able to enroll in the first phase. Other individuals, including self-employed persons and those who work for smaller employers, would be able to enroll in subsequent phases, after the initial enrollment meets a pre-set threshold. Though the statute does not expressly contemplate phased enrollment, we believe that the Secretary has statutory authority to establish phased enrollment procedures, subject to certain conditions described below. The phased enrollment process described in the Enhanced CLASS Plan would open enrollment to all statutorily-eligible individuals only if the initial group satisfied a predetermined risk profile. Because opening enrollment is subject to a condition that may never be met, this enrollment structure does not comply with the law.

    Section 3204 sets forth the statutory requirements for enrollment in the CLASS program. This section requires, among other things, that the Secretary, in coordination with the Secretary of the Treasury, establish procedures to enable employers to enroll employees in the program automatically; establish alternative procedures for individuals who are self-employed, who have more than one employer, and whose employers do not elect to participate in the automatic enrollment process; and establish procedures to ensure that an individual is not automatically enrolled by more than one employer. 42 U.S.C. § 300ll-3(a)(1)-(3). Section 3204 further provides that “[e]nrollment in the CLASS program shall be made in such manner as the Secretary may prescribe in order to ensure ease of administration.” Id. § 300ll-3(a)(3)(B). With a limited exception inapplicable here,8 the statute is silent on the time at which individuals must be able to enroll and the duration of the enrollment period. The statute also does not establish a deadline by which the CLASS program must be fully implemented. In light of that silence, the absence of a deadline, and the Secretary’s authority to establish enrollment procedures, we believe the CLASS program may institute a phased-in enrollment process, so long as the process aims “to ensure ease of administration” and is otherwise consistent with the statutory design of the CLASS program.

    The statute does not define “ease of administration.” The Secretary has authority to interpret that term, and we believe it would be within her discretion to interpret it to encompass the effective and efficient functioning of the program. As we understand it, the proposed phased enrollment process is attractive for many reasons. It would allow program administrators to test actuarial projections about matters such as take-up and claim rates on a small scale, so that any necessary premium or other adjustments could be made before taking the program to a larger scale. It would also allow for a more controlled enrollment process, helping program administrators to secure a sufficient reserve of initial funds from premiums paid by individuals who are assumed to be at low risk for entering benefit status immediately after the vesting period. In addition, the efficiencies of scale that could be achieved through marketing to and enrolling employees of large employers would help make initial enrollments more manageable and control start-up expenses. All of these purposes can reasonably be interpreted to serve the aim of easing the administration of the CLASS program.

    The phased enrollment process must be consistent with the statutory design of the CLASS program. To be consistent, the process would have to ensure, at a minimum, that (1) at least some representation of all classes of statutorily eligible enrollees have the opportunity to enroll in each phase; and (2) the process becomes fully open and all statutorily eligible enrollees have an opportunity to enroll within a reasonable period after start-up. Relatedly, the Secretary’s obligation to designate a program that will be actuarially sound for seventy-five years cannot rest on the assumption that the program can control enrollment throughout the seventy-five-year period or any significant part of that period. To the contrary, the Secretary’s designation (and the plan’s premium estimates) must rest on the assumption that, within a reasonable period of time, all statutorily eligible enrollees will have the opportunity to enroll in the program. The proposed phased enrollment process does not meet the two conditions, and hence would be inconsistent with the statute.

    To be clear, even if a phased enrollment plan allowed some representation of all classes of statutorily eligible enrollees in each phase, it could not adopt a “wait-and-see” approach like the one proposed here. The requirement that the CLASS program eventually opens enrollment to all statutorily eligible individuals within a reasonable time period means that the program must be designed from the outset to do so. The phased enrollment process must ensure that the program will fully open, not that the program will fully open only if there are manageable take-up and claim rates. Making fully open enrollment contingent on the successful enrollment of only certain classes of individuals, particularly individuals who are expected to be healthier than those excluded, or certain distributions of classes of individuals, is inconsistent with the statutory scheme. The statute contemplates a program open to all statutorily eligible individuals. While the Secretary’s authority to make regulations consistent with the title and to prescribe enrollment procedures can reasonably be interpreted to permit her to have enrollment proceed in phases--particularly if doing so were deemed necessary to adopt an actuarially sound and fiscally solvent program--we do not believe that authority extends to making certain statutorily eligible individuals’ ability to enroll in the program contingent upon specific enrollment or fiscal criteria goals being met. Because the proposed phased enrollment process would not provide certainty that all eligible individuals will be able to enroll in the program within a reasonable time, we conclude that there is no statutory basis for this type of approach.9

  4. FAMILY OF OPTIONS PLAN (MODIFIED CLASS PLAN + SCHEDULED INCREASING BENEFIT PLAN)

    The Family of Options Plan would establish the statutorily required CLASS Independence Benefit Plan as a single plan that has two plan options within it: the Modified CLASS Plan and the Scheduled Increasing Benefit Plan. Any individual enrolling in the Partnership Plan would have the option to enroll in the plan that he or she prefers. While a reasonable argument can be made that the statute allows the designated plan to encompass multiple plan options, we believe that at least one plan option must be consistent with all of the statutory requirements, and both plan options must, at a minimum, be consistent with the statutory requirements applicable to cash benefits and eligible beneficiaries. Because the Scheduled Increasing Benefit Plan option conflicts with those requirements, we do not believe that there is legal authority for the proposed Family of Options Plan.

    Family of Options. Section 3203(a)(1) of the CLASS Act directs the Secretary to develop at least three actuarially sound alternative plans for designation as the CLASS Independence Benefit Plan. Id. § 300ll-2(a)(1). Each of the plan alternatives must be designed “to provide eligible beneficiaries with the benefits described in section 3205 consistent with” a set of requirements concerning premium amounts, a five-year vesting period, benefit triggers, and a cash benefit. Id. Section 3205 establishes that the plan shall provide three types of benefits: the cash benefit “established by the Secretary in accordance with the requirements of section 3203,” advocacy services to assist beneficiaries with accessing the appeals process and complying with the annual recertification process, and advice and assistance counseling.10Id. § 300ll-4(b)(1)-(3).

    The statute is silent on the question of whether there may be a family of options under one plan, and we believe the Secretary has discretion to designate such a plan, subject to certain conditions. According to section 3203, the plan “shall be designed to provide eligible beneficiaries with the benefits described in section 3205 [concerning the three types of benefits described above] consistent with the” requirements in section 3203 concerning premiums, vesting period, benefit triggers, and the cash benefit. Id. § 300ll-2(a)(1). We understand that the family of plans design rests on the assumption that one option would satisfy all of the statutory requirements in sections 3203 and 3205 while the other option need not. The argument here is that section 3203 establishes only that the designated plan provides a set of benefits consistent with the section 3205 requirements, not that the specified benefits exhaust the range of permissible options, or constitute the only benefits that a plan may provide. In other words, the designated plan must be designed, at a minimum, to provide the specified benefits, but it may, in addition, provide other benefits that need not be consistent with sections 3203 and 3205. Because the statute is silent on this issue, and a reasonable argument can be made that such an interpretation is consistent with the statute, we have concluded that the Secretary has authority to designate such a plan.

    We have two caveats to our conclusion. First, as mentioned above, at least one of the plans must satisfy the statutory requirements in section 3203 concerning premiums, vesting period, benefit triggers, and the cash benefit and in section 3205 related to plan benefits. Second, in light of the appropriations provisions of the CLASS Act, for any plan option, the Secretary’s discretion to stray from the statutory requirements concerning the cash benefit and eligible beneficiaries is limited. In particular, in each plan option, the cash benefit must meet the statutory requirements applicable to cash benefits, see id. §§ 300ll-2(a)(1)(D), 300ll-4 (b)(1) ($50 per day average minimum, rising annually with the CPI-U percentage increase; two to six benefit levels, scaled to functional ability; daily or weekly payments; and no lifetime or aggregate limits), and the cash benefits may be paid only to beneficiaries who meet the statutory definition of “eligible beneficiaries.” See id. § 300ll-1(6) (prescribing, for example, the minimum earnings requirement).

    Section 3206(a) establishes the CLASS Independence Fund, which receives all premiums and any unpaid, accrued benefits that have been recouped, as well as any investment gains from those moneys. Id. § 300ll-5(a). Section 3206(a) further provides that the amounts held in the fund are appropriated and shall remain available for three purposes: to be held for investment on behalf of individuals enrolled in the CLASS program; to pay administrative expenses associated with the Fund and its investments; and “to pay cash benefits to eligible beneficiaries under the CLASS Independence Benefit Plan.” Id. (emphasis supplied). It is a cardinal principle of appropriations law that appropriated funds may be used only for the purposes specified in federal law. See, e.g., 31 U.S.C. § 1301(a) (“Appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided in law.”); General Accounting Office, GAO-04-261SP, Principles of Federal Appropriations Law 4-6 - 4-13 (3d ed. 2004). Though one might argue that the appropriations provision authorizes any cash benefits that are paid to any individuals who have enrolled in and achieved beneficiary status under the plan designated by the Secretary, we think that that argument is unpersuasive. The statute makes clear in its definitions section that the term “eligible beneficiary” in the Act has the meaning prescribed in section 3202(6). Although the statute does not include the term “cash benefit” in its definitions section, the statute frequently references the term, and courts generally do not approve of agencies defining terms one way in one part of the statute and a different way in another part. See Sullivan v. Stroop, 496 U.S. 478, 484 (1990) (applying the “normal rule of statutory construction that ‘identical words used in different parts of the same act are intended to have the same meaning’” (internal quotations omitted)). Accordingly, we conclude that the appropriations provisions mean that the designated CLASS plan may pay only those cash benefits that meet the prescribed statutory standards to eligible beneficiaries who also meet the prescribed statutory standards.

    Modified CLASS + Scheduled Increasing Benefit. The Family of Options Plan would offer the Modified CLASS Plan and the Scheduled Increasing Benefit Plan.11 We do not, however, believe that the Family of Options Plan satisfies the essential statutory requirements of the CLASS Independence Benefit Plan. First, the plan rests on the assumption that one of the plan options, the Modified CLASS Plan, satisfies the specified statutory requirements. It is unclear, however, whether this option does so. The Modified CLASS Plan includes a minimum earnings requirement of $12,000, a requirement that that amount be earned during the first five years of enrollment, and an indexed monthly premium that rises at a fixed rate of 2.8 percent. As described above, although there is a plausible statutory basis for a $12,000, five-year minimum earnings requirement, we have concerns that there could be a successful challenge to this requirement. See supra pp. 29-31.

    Second, the Scheduled Increasing Benefits option would not satisfy the requirements applicable to cash benefits. Incorporating the increased minimum earnings requirement and the fixed schedule of premium increases of the Modified CLASS Plan, the Scheduled Increasing Benefit Plan would provide benefits for a maximum of three claim years. It would provide for a low daily cash benefit amount to beneficiaries who become eligible to claim benefits within the first twenty years of enrollment. The available daily benefit would rise by a set amount each year for twenty years until it reached a maximum of $150 per day. To be more specific, if enrollees were to receive benefits in the sixth year of enrollment (i.e., in the first possible year to qualify after the five-year vesting period), individuals with functional limitations in two or three ADLs would receive benefits of $20 per day and individuals with four or more ADL limitations, $24 per day.12 The benefit amounts would rise each year by $6.50, plus a three percent automatic compound inflation (ACI) factor. Without taking inflation into account, if that enrollee were to receive benefits during the seventh year of enrollment, the individual would receive a benefit of $26.50 per day; during the ninth year of enrollment, a daily benefit of $39.50 ($20 + ($6.50 * 3)). In the twenty-sixth year of enrollment, without taking inflation into account, the daily benefit would reach its maximum amount of $150 and would remain at that level in subsequent years.13 Beneficiaries with two or three functional ADLs who begin receiving benefits before their twenty-fourth year of enrollment would never receive the maximum, however, because the benefit term would be only thirty-six months.

    The three-year benefit term would violate the statutory prohibition on lifetime limits for cash benefits. 42 U.S.C. § 300ll-2(a)(1)(D)(iv). Additionally, unless the benefits provided in the Modified CLASS Plan are sufficiently high to compensate for the low initial daily benefits in the Scheduled Increasing Benefit Plan, the Family of Options Plan’s benefits would violate the $50 per day average minimum requirement. See id. § 300ll-2(a)(1)(D)(i). Even if the requirement were met, it bears emphasis that this benefit structure is likely inconsistent with the statute in another way. The CLASS Act’s stated purpose is to provide beneficiaries with tools that will allow them to ensure their personal and financial independence and exercise their options to live in the community for as long as possible. See id. § 300ll. Because initial daily benefit amounts that are as low as $20 or $24 may well be inadequate to ensure any meaningful level of services or supports for an individual with substantial functional limitations, setting benefits that low would likely be seen as defeating the statutory purpose.

    As discussed above, the family of plans approach may allow some deviation from the statutory requirements unrelated to cash benefits and eligible beneficiaries for one plan if the other plan meets all the statutory requirements. We have concerns about whether the Modified CLASS Plan meets all the statutory requirements. Even if it does, the Scheduled Increasing Benefits option violates the prohibition of lifetime limits on the cash benefit. Accordingly, we conclude that there is no legal authority for the Family of Options Plan.

  5. TEMPORARY EXCLUSION PLAN

    The Temporary Exclusion Plan would impose a fifteen-year waiting period for the receipt of benefits on enrollees whose functional limitations that trigger benefits result from a serious health condition that existed at the time of enrollment. We believe that there is no legal authority to implement the Temporary Exclusion Plan.

    The CLASS Act sets forth detailed criteria concerning the minimum earnings and premium payments requirements that an active enrollee must meet to become an eligible beneficiary, the benefit triggers that allow for the provision of benefits, and the process of determining eligibility. As discussed above, concerning minimum earnings and premium payment requirements, section 3202(6) provides that, in order to become an “eligible beneficiary,” an active enrollee must have paid premiums for at least sixty months and have met other earnings and premium payment requirements. Id. § 300ll-1(6)(A). With respect to benefit triggers, section 3203 provides that benefits are triggered when an individual is determined to be unable to perform a specific number of ADLs or is determined to have the requisite level of cognitive impairment. Id. § 300ll-2(a)(1)(C).

    Concerning eligibility determinations, the statute requires the Secretary to establish procedures under which an active enrollee may apply for benefits. Id. § 300ll-4(a)(1). The statute further provides that “[a]n active enrollee shall be deemed presumptively eligible if the enrollee:

    1. has applied for, and attests is eligible for, the maximum cash benefit under [the plan];
    2. is a patient in a hospital (but only if the hospitalization is for long-term care), nursing facility, intermediate care facility for the mentally retarded, or an institution for mental diseases; and
    3. is in the process of, or about to begin the process of, planning to discharge from the hospital, facility or institutions, or within 60 days from the date of discharge from the hospital, facility, or institution.

    Id. § 300ll-4(a)(1)(C).

    The statute does not explicitly address whether the CLASS Plan may impose a waiting period for receipt of benefits on enrollees whose functional limitations resulted from serious health conditions at the time of enrollment. Although it might be possible to argue that the statute’s silence on the issue means that the Secretary has authority to establish a waiting period, we think that such a waiting period is inconsistent with the statute. While the statutory provision concerning benefit triggers does not specify that a functional limitation determination triggers immediate benefits, another provision states that “[b]enefits shall be paid to, or on behalf of, an eligible beneficiary beginning with the first month in which an application for such benefits is approved.” Id.§ 300ll-4(b)(3). Although the Secretary has the authority to establish procedures for the application process, the statute does not permit her to delay the approval of any applicants, including those with serious health conditions at the time of enrollment. The statute prescribes very detailed criteria concerning eligible beneficiary status and benefit triggers. Establishing any additional factors for eligibility, or that would delay eligibility, is precluded by the clarity with which Congress spoke on this issue. Likewise, in authorizing the Secretary to prescribe regulations for the eligibility determination process, nowhere does the statute discuss, or even intimate, waiting periods for individuals with serious health conditions at the time of enrollment. To the contrary, the statute explicitly addresses the eligibility of enrollees who have been hospitalized for long-term care or have been patients in “nursing facilit[ies], intermediate care facilit[ies] for the mentally retarded, or institution[s] for mental disease.” Id. § 300ll-4(a)(1)(C). In making such enrollees presumptively eligible for receipt of benefits, the statute aims to make access to benefits for them easier, rather than more difficult. Put another way, one of the statute’s underlying assumptions is that individuals who have already demonstrated a need for long-term care or live with intellectual disabilities, developmental disabilities, or mental illness deserve benefits in an expedited fashion. As the statute aims to help individuals purchase insurance that will provide them with monetary benefits to help them secure the long-term care options of their choice, a requirement that eligible beneficiaries who have an immediate need for long-term care after the vesting period wait fifteen years before receiving benefits is at cross-purposes with the statutory objectives and the plain language of the statute.

    Another provision of the statute, which prohibits underwriting, also supports the argument that the proposed waiting period is inconsistent with the statute. Section 3203(b)(3) provides in relevant part that “[n]o underwriting (other than on the basis of age . . .) shall be used to (A) determine the monthly premium for enrollment in the CLASS program; or (B) prevent an individual from enrolling in the program.” Id. § 300ll-2(b)(3) It is true that the waiting period does not technically violate this prohibition; individuals with health conditions that lead to functional limitations may enroll in the program, and their monthly premium is not determined by the health condition. Yet, the waiting period conflicts with the prohibition’s underlying goal. The waiting period treats individuals with specific health conditions at the time of application differently than individuals without such conditions while the underwriting prohibition seeks to make all factors other than age irrelevant to an individual’s ability to participate in and benefit from the program. Accordingly, we conclude that there is no authority under the CLASS Act for a plan to adopt the proposed waiting period.14

  6. TEMPORARY EXCLUSION PLAN WITH PHASED ENROLLMENT

    This plan combines the Temporary Exclusion Plan with the phased enrollment feature. Consistent with our prior analysis, see supra pp. 39-41 (Temporary Exclusion), pp. 34-36 (Phased Enrollment), because of the incorporation of the fifteen-year waiting period for pre-existing conditions, we do not believe that there is legal authority to implement this plan.

  7. LIMITED INITIAL BENEFIT PLAN WITH PHASED ENROLLMENT

    With the exception of its benefit structure, this plan is the same as the Enhanced CLASS Plan with Phased Enrollment, the Limited Initial Benefit Plan would provide a very low benefit amount to individuals who become eligible for benefits in the first twenty years of their enrollment. Enrollees who become eligible after the twentieth year of enrollment would receive a $50 per day average benefit. We believe that this plan is inconsistent with the statute.

    Limited Initial Benefit. The Limited Initial Benefit Plan with Phased Enrollment would offer one or two benefit levels. Because the statute requires at least two benefit level amounts, scaled to functional ability, see 42 U.S.C. § 300ll-2(a)(1)(D)(ii), we assume, for purposes of this analysis, that the plan offers two such benefit level amounts. If a beneficiary were to enter benefit at any time during the first twenty years after enrollment, the beneficiary would receive a low benefit, for example, $5 or $10 per day, for each benefit level, respectively. Thereafter, beneficiaries would receive a “regular benefit,” for example $50 to $60 per day, for each benefit level. The proposed benefit structure is inconsistent with the statute because of its effect on the first twenty years of the program’s operation. As discussed above, the CLASS Act requires that the cash benefit amount meet or exceed the $50 per day average, taking into account the reasonably expected distribution of beneficiaries receiving benefits at various benefit levels, for the first year in which beneficiaries receive benefits under the plan. Id. § 300ll-2(a)(1)(D)(i). For each subsequent year, the benefit amount must increase by not less than the percentage change in CPI-U over the previous year. Id.§ 300ll-4(b)(1)(B). The Limited Initial Benefit plan’s proposal to provide initial low daily benefits would not satisfy this requirement. During the first twenty years of the plan’s operation, all enrollees that become eligible for beneficiary status would receive only the limited $5 or $10 per day. Because both of those amounts are less than $50, it would be impossible for the per day average to meet the minimum requirement. Moreover, as with the Scheduled Increasing Benefits Plan, see supra pp. 38-39, the Limited Initial Benefit structure is inconsistent with the statute’s purpose. Because initial daily benefit amounts that are as low as $5 of $10 would be inadequate to ensure any meaningful level of services or supports for an individual with substantial functional limitations, setting benefits that low would defeat the statutory purpose to provide beneficiaries with tools that will allow them to ensure their personal and financial independence and exercise their options to live in a community for as long as possible. See 42 U.S.C. § 300ll. Accordingly, we conclude that there is no statutory authority for the Limited Initial Benefit Plan with Phased Enrollment.

  8. PRE-PAID BENEFIT PLAN

    The Pre-Paid Benefit Plan rests on two basic assumptions. First, because the CLASS program is voluntary, a disproportionate number of people who are at high risk of needing long-term care services will enroll. Second, nearly every enrollee will become eligible for benefits shortly after vesting. To ensure the financial viability of the program, the Pre-Paid Benefit Plan would set the premium level for each individual to cover the expected payout for that individual; in other words, individuals would essentially “pre-pay” their benefits. Similar to the Enhanced CLASS Plan, the Pre-Paid Benefit Plan would provide beneficiaries with 100 percent of the daily benefit amount for the first five claim years and twenty percent of the daily benefit amount thereafter. We have concluded that the Pre-Paid Benefit Plan is not consistent with the statute.

    Section 3203(a)(1)(A)(i) of the CLASS Act requires the Secretary to set initial premiums based on an “actuarial analysis of the 75-year costs of the program that ensures solvency throughout such 75-year period.” Id. § 300ll-2(a)(1)(A)(i). Subject to limited exceptions not relevant here, the statute requires that “the amount of the monthly premium determined for an individual upon such individual’s enrollment in the CLASS program shall remain the same for as long as the individual is an active enrollee in the program.” Id. § 300ll-2(b)(1)(A). In addition, the statute requires that there be a nominal premium, not to exceed $5 per day, to be paid by the poorest individuals and actively employed full-time students. Id. § 300ll-2(a)(1)(A)(ii).

    The Pre-Paid Benefits Plan would establish a premium at the time of an individual’s enrollment, and the premium would not change. We understand that because the plan would not control for adverse selection and assumes that nearly everyone who enrolls will receive benefits shortly after vesting, the plan would have to set the premium between $400 and $3,000 per month in order to be actuarially sound. Though such premium might satisfy the Secretary’s obligation to set initial premiums based on actuarial analysis to ensure solvency for seventy-five years and would meet the requirement that the premium remain the same, it does not account for a nominal premium. The statute explicitly creates a nominal premium for individuals with incomes below the poverty line and actively employed full-time students, and does not authorize a waiver or elimination of the nominal premium. Id. § 300ll-2(a)(1)(A)(ii). In fact, it requires the Secretary to maintain a nominal premium even if the standard premium rate must be adjusted to ensure the solvency of the program. See id. § 300ll-2(b)(1)(B)(i) (authorizing the Secretary to adjust premiums as necessary upon a showing that the premiums will be inadequate to meet the twenty-year demands of the program “but maintaining a nominal premium for enrollees whose income is below the poverty line or who are full-time students actively employed”). Because the Pre-Paid Benefits Plan violates the statutory provision for a nominal premium, it is inconsistent with the statute.

    Decreasing Benefit After Five Claim Years. For an analysis of this feature, see supra pp. 32-34.

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