Question

In: Economics

The Community Living Assistance Services and Supports (CLASS) Act, a voluntary federal insurance program for long-...

The Community Living Assistance Services and Supports (CLASS) Act, a voluntary federal insurance program for long- term care, was established as part of the ACA. Why was it repealed?

The aged were opposed to the CLASS Act because they wanted greater benefits and expected that its repeal would introduce a more generous long-term care program.

The American Association of Retired Persons (AARP), a powerful political lobby, was opposed to the CLASS Act because it would have been a subsidized substitute to the long- term care insurance the organization marketed to the aged.

Because the CLASS Act was a voluntary program, the federal government was concerned that adverse selection would occur.

The private insurance industry was opposed because it viewed the CLASS Act as competition to its products, and it successfully lobbied Congress to repeal the program.

Solutions

Expert Solution

The Community Living Assistance Services and Supports (CLASS) Act was a federal law which was aimed at creating a voluntary and public long term care insurance option for employees, but was repealed by Obama administration on  January 1, 2013 stating that it was unworkable or unsustainable to run.

The main cause of the Law being repealed was the federal government was concerned that adverse selection would occur.

Explanation

The CLASS Act provided for voluntary enrollment which meant it was open to any employed American who was over 18. There was no medical underwriting - premium was not dependent on an enrollees' health status. Now what happens is when anyone can enroll in an “insurance” program, and everyone has to be charged the same rates regardless of their risk of filing a claim, those who are most likely to need to coverage are going to be those most likely to enroll. In order for the plan to break even, premiums are needed to be set up to take this into account. This made the plan look as a bad deal to the lower risk individuals, who then decided not to enroll - which forces the premium to go even higher leading more and more number of people declining enrollment.  This phenomenon is called “adverse selection,” and it could occur whenever potentially enrolled patients have a better idea of their risk level than can be reflected in premiums. In some rare cases, this adverse selection effect could be so strong that premiums increase to an unimaginably higher level making the program literally implausible.

None of the other options are correct.

This law was intrinsically favorable to the aged ones or those with higher risk of health problems and that is why they didn't have too many reasons to oppose this act.

AARP , powerful interest group working for people's health rights as they age and in this case the group would rather welcome the legislation than oppose it.

The last option is also incorrect.


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