For CLASS Act to Survive, Look to FHA for Inspiration

New construction is a risky proposition these days. Initial design and the costs of construction are some of the most critical factors when developing a new home even though the long-term use of the house is unquestioned. Is it right to rip up the foundation of a new home because of questions about how to pay for it? If so, that’s what the Republican-controlled House of Representatives did when it voted to repeal the CLASS Act.

The CLASS Act (Community Living Assistance Services and Supports), a voluntary long-term care insurance program, was designed to meet the needs of seniors, caregivers and families to provide long-term care insurance and supportive services.  The CLASS Act was created as part of the Obama Administration’s healthcare reforms under the Affordable Care Act.

The need for long-term care insurance continues to grow as the American population ages regardless of socio-economic background. The CLASS Act was implemented as part of a wide-ranging solution to combat the rising costs associated with Medicare and Medicaid—a fundamental problem facing the country’s fiscal future. While the program was not designed to be the silver bullet to the problems facing Medicare and Medicaid, it was designed as a risk mitigant to the rising costs of care that would ultimately be borne by the taxpayer.


Government Intervention Needed for Greater Accessibility

While there are private sector alternatives for long-term care insurance, can these products reach the thousands of Americans who need it?  Can private-sector participants keep costs under control, all while being accessible to the average American?  
The need for long-term care insurance in the coming years will mimic the need for the government to provide a means for affordable homeownership for individuals and families. Homeownership has been a cornerstone of the American dream, and affordable long-term care may supplement that as part of the dream.

Before criticizing the government’s role in the current housing crisis, look back over the last 78 years that the government has played in managing risk (insurance) for home purchases. The Department of Housing and Urban Development’s (HUD) Federal Housing Authority (established in 1934) provides mortgage insurance to many lenders throughout the country as a means to provide protection against loan defaults. Over the years, the FHA loan programs have provided many homeowners with the an opportunity to own their homes with a low down payment and interest rate while providing lenders protection to encourage taking risks to lend these funds out.


For the first time in its history, the FHA may exhaust its reserves in the coming fiscal year according to the budget figures released by the Obama Administration. In an effort to combat the funding and solvency concerns of the insurance fund, FHA has raised premiums and fees associated with the origination of their loan products.These changes in funding mechanisms allow the program to continue ahead and serve the underlying mission of HUD and FHA despite the possible need for infusion from the Treasury department. The birth of FHA was during the Great Depression that provided a basis from which to promote homeownership.

Has the FHA had a spotless past? Absolutely not, but it has stood the test of time and provided a meaningful product that has enabled thousands (if not millions) to enjoy part of the American dream.  Even as the housing market has showed that there are substantial risks to keeping the FHA insurance fund solvent, are there cries to abolish the laws that established the program?  There has been no vocal cry to repeal the National Housing Act of 1934.  Are all aspects of the National Housing Act of 1934 relevant today?  No, but the legislation has evolved to provide the basis for the success of the program over the years and mechanisms are in place provide for the safekeeping of the insurance fund’s solvency over time.

Should CLASS be Back in Session?

Although there are defects within the CLASS Act, repealing the program represents a premature retreat from a crucial fight. Proceeding to implement—with an eye on modifications and amendments—is the most prudent course to provide an opportunity for affordable, attainable long-term care insurance.

No program is perfect, especially ones devised by the federal government.  Dismantling the foundation and building blocks of the CLASS Act will do more harm than good, which will require starting from scratch.  Many providers and advocacy groups have provided recommendations that will modify the program and address the concerns over the affordability of premiums, funding mechanisms for long-term security and ways to protect tax payers from costs spiraling out of control.  There is no doubt there are flaws in the fiscal sustainability of the Act as it stands today but to simply “give up” is almost un-American.

Could the fundamentals of CLASS be re-worked to make it a program that starts small and grows with time in a fiscally responsible manner?  Even if the program is re-worked but less accessible to the broad populus, it would still be better than nothing.  Could it morph into an insurance type “wrapper” tied to long-term care insurance products like FHA insurance with private lenders?

Even though the House voted to put the CLASS Act down, we should consider the alternative of no program for long-term care that is affordable and accessible to all Americans. If FHA was a byproduct of the Great Depression, maybe the Great Recession will highlight the need for the government to play a role in maintaining affordable long-term care insurance.

Let’s hope that the CLASS Act can withstand the partisan politics to initially survive and then become the program that was hoped for at the outset. While the expectations may initially shrink from the grand vision of new construction, a smaller, more efficient house that can work within the original foundation can sometimes be the right solution.

Written by George Yedinak