Tuesday, August 09, 2011

CLASS Warfare

FoIB Avik Roy has some profound thoughts on the mis-named CLASS Act, and especially on a recent article in Foreign Affairs magazine by former Obamastration official Peter Orzag. In the FA piece, Mr Orzag acknowledges what we said some time ago, namely that:

"There is a serious risk that healthy people may be reluctant to join the program, whereas those who most need long-term care will be eager to do so, jeopardizing the idea of a broad and stable risk pool."

No kidding?

Avik then quotes, verbatim, Mr Orzag's proposed "solution:"

"[T]o make the purchase of such insurance mandatory or to require employers to provide it by default unless employees opt out."

Hmmm....a mandatory health insurance program. What a novel idea!

In response, Mr Orzag took Avik to task for...wait for it...quoting him verbatim:

"You (and Sen. Thune, for that matter) mischaracterize and misunderstand the sentences cited from my Foreign Affairs article. It was not that we should mandate CLASS. "

Seriously? You're going with that? Because that's precisely what you said, Mr Orzag. It's one thing to "walk back" what you said, but to deny it altogether?

I'm actually a bit disappointed that Avik let that go; frankly, Mr Orzag should be embarrassed by his own amateur attempt at spin.

What's worse, of course, is Mr Orzag's - and, by extension, this regime's - understanding of even basic insurance principles. Long Term Care insurance is a complicated product, but it's not rocket surgery. Folks like Mr O appear to be totally clueless as to how these risk management tools work, and for whom they're designed.

Let's start with some basics:

The LTCi market is, by definition, narrow and focused. That is, neither the very wealthy nor the poor need it. One of the most fundamental rules of the insurance business is that first there must be a need for the coverage.There's a specific, well-defined middle-class swath that most benefits from LTCi, and that's further diminished by the fact that it's not inexpensive coverage.

Perhaps the most important benefit of modern LTCi products is Partnership Compliance, which encourages folks to buy policies in order to stave off the Medicaid folks. But CLASS Act plans are not Partnership compliant, making them even less attractive and less valuable.

On the other hand, one must admire the chutzpah of Mr Orzag to suggest that purchasing these plans must be mandatory, with an optional opt-out mechanism. One can easily imagine the nature of that mechanism, by the way: how soon until we see HHS Secretary Shecantbeserious selling handing out CLASSWaivers©?

Mr Orzag and his ilk may protest all they wish, but it is past disingenuous to claim that he's not calling for a CLASS Act mandate.

Several years ago, my eldest misplaced her keys. She became increasingly frustrated as we tried to help her noodle out where she might have left them, until, finally, she bellowed "they're not lost - I just can't find them!"

Where are your keys, Mr Orzag?
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