It’s a cherished Washington tradition to announce embarrassing news on a late Friday afternoon. This Friday was the latest example, as Health and Human Services Secretary Kathleen Sebelius announced that CLASS, Obamacare’s star-crossed long-term-care entitlement, was being “suspended” indefinitely.
Sebelius’ announcement is full of the misleading language that, unfortunately, has become the hallmark of her reign at HHS. She acknowledges that Medicare’s chief actuary “issued warnings” that CLASS was unsustainable, but tries to make it seem like there were equally compelling arguments in CLASS’ favor, and that Democrats were chin-strokingly thoughtful about CLASS’ design:
While some analysts predicted that the CLASS program’s finances would be sustainable, others including the actuary for Medicare and Medicaid issued warnings to Congress and the public before the law was enacted that not enough young, healthy people would sign up. This could have led to a vicious cycle where premiums would have to be set higher and higher to cover the likely costs of benefits, leading fewer and fewer healthier people to sign up for the program. For this reason, the law required me to develop a benefit plan that, in addition to meeting other statutory requirements, would also be solvent for at least 75 years.
Since then, our department has worked steadily to find a financially sustainable model for CLASS. Over the last 19 months, we’ve examined the long-term care market, modeled possible plan designs, and studied the CLASS statute, consulting at every step of the way with outside actuaries, insurers, and consumer groups.
When it became clear that most basic benefit plans wouldn’t work, we looked at other possibilities…we cast as wide a net as possible in searching for a model that could succeed. But as a report our department is releasing today shows, we have not identified a way to make CLASS work at this time.
Contra Sebelius, it was obvious to everyone with any experience in designing insurance programs that CLASS would never work. Democratic Senator Kent Conrad (S.D.), Chairman of the Senate Budget Committee, famously described it in 2009 as a “Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.” As Richard Foster, the Medicare actuary, put it in an internal email as the CLASS provisions were being written, “Thirty-six years of actuarial experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue.”
There was only one way to make CLASS function, and that would have been to force every American to sign up for the program, so that the healthy could be dragged into subsidizing the sick. Without that individual mandate, or something like it, CLASS was never going to work, as former Obama budget chief Peter Orszag acknowledged in a recent essay for Foreign Affairs.
There’s one reason, and one reason alone that CLASS made it into Obamacare: fiscal chicanery. The Congressional Budget Office, by convention, only scores the impact of legislation for its first ten years. And CLASS accounts for $86 billion of Obamacare’s claimed $210 billion in deficit savings from 2012 -2021. As the CBO itself acknowledged, the long-term consequence of CLASS would be a “large and growing” tumor of deficit expansion:
Beyond the 10-year budget window, the effects of the program could be quite different, and CBO expects that the HHS Secretary would need to reduce benefit payments and increase premiums to maintain the program’s solvency…Overall, CBO estimates, if the Secretary did not modify the program to ensure its actuarial soundness, the program would add to future federal budget deficits in a large and growing fashion beginning a few years beyond the 10-year budget window.
As I have written previously, long-term care in America is something worthy of serious attention. One-third of all Medicaid spending is for long-term care, much of it to middle- and upper-income retirees who transfer their assets to other family members in order to appear poor and qualify for the program. It’s a huge and growing burden for fiscally-challenged state governments. But CLASS would have taken that significant problem and made it much worse. Secretary Sebelius, at the very least, deserves credit for “suspending” the program and not creating a time bomb for future administrations.
But to those who wonder why so many people strongly oppose the Affordable Care Act, CLASS should be exhibit A. CLASS is Obamacare writ small: a nice-sounding program whose advocates claim will give people something for nothing. But Americans intuitively understand that giving people something for nothing can’t reduce the deficit. If only our government could understand the same.
CLASS should be repealed today, and its phantom savings removed from Obamacare’s ledger. It’s a necessary first step in bringing honest accounting to government-sponsored health care.
