CLASS Dismissed

by Andrew Stiles

Add it to the list of Friday news dumps, but this one takes the cake. Apparently, the Obama administration has determined that the fiscally unsustainable long-term care insurance program — the CLASS Act — that was jammed into the new health-care law is, in fact, fiscally unsustainable, and will no longer pretend otherwise:

WASHINGTON — The Obama administration says it is unable to go forward with a major program in the president’s signature health care overhaul law — a new long-term care insurance plan.

Officials said Friday the long-term care program has critical design flaws that can’t be fixed to make it financially self-sustaining.

Health and Human Services Secretary Kathleen Sebelius told Congress in a letter that she does not see a viable path forward at this time. By law, implementation of the program was contingent on Sebelius certifying it financially sound.

The program was supposed to be a voluntary insurance plan for working adults regardless of age or health. Workers would pay an affordable monthly premium during their careers, and could collect a modest daily cash benefit if they became disabled later in life.

The problem all along has been how to ensure enough healthy people would sign up.

I recently wrote about how the administration pushed ahead with the program despite these obvious concerns:

The program is now widely acknowledged, even by Obamacare proponents, to pose a tremendous financial liability. In the absence of a sizable bloc of healthy individuals signing up for (and thus, paying into) the plan, it would be unable to sustain itself financially, as that would require charging enormous premiums to the aging beneficiaries who remained on the program. Which is why President Obama’s own debt-reduction commission (Bowles-Simpson) recommend major reforms to the CLASS, if not outright repeal.

But according to an investigate report released today — compiled by a working group of GOP lawmakers led by Sen. John Thune (R., S.D.) — it appears that during the legislative drafting process, the administration repeatedly refused to acknowledge such concerns. So they resorted to budgetary gimmicks in order hide the true cost of the plan, establishing a fiver-year “vesting” period in which enrolled recipients pay premiums but are not eligible to collect benefits. Which, if you happen to be working within a 10-year budget window, is awfully convenient. As a result, the Congressional Budget Office scored the plan as 10 years worth of premiums less just five years of benefit payments. Not surprisingly, the plan “scored” as reducing the deficit by $70 billion over a decade.

As you’ll recall, this “savings” was a critical, if incredibly dishonest, selling point of the new health care law. CBO did not issue any public estimates (though such findings are presumed to exist) regarding the plan’s sustainability over the long-term, or indicate how the program could possibly remain solvent as the population of beneficiaries aged. Long after Obamacare was passed and signed into, even prominent supports of the bill acknowledged that the CLASS Act was a financial disaster waiting to happen. Senate Budget Committee chairman Kent Conrad (D., N.D) called it “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would be proud of.” Health and Human Services secretary Kathleen Sebelius admitted it was “totally unsustainable” in its current form. But again, that was after Obamacare had been enacted. In fact, under the new law, HHS has until Oct. 1, 2012 to finalize the program’s requirements, to be imposed through regulation. Because the law (no doubt intentionally) left vague many of the plan’s key provisions, there is currently no way to reliably assess the program or estimate its potential cost.

The CLASS Act’s demise, while all but inevitable, is disturbing on a number of levels. It’s hard to think of a more fitting example of how the budget process in Washington has been completely corrupted. What kind of depraved accounting scheme lets Congress enact into law a program that literally cannot sustain itself from the get-go? A program that the CBO, in accordance with an absurdly flexible set of budgetary rules, scored as deficit-reducing! Not only that, but the 10-year’s worth of CLASS Act premiums accounted for nearly half ($70 billion out of $143 billion) of the overall “savings” in Obamacare. In fact, the law might well have never passed without them, as they were included to give the (false) appearance of fiscal sanity. The good news is that Congress can do away with some the outrageous gimmicks that have fueled Washington’s fiscal recklessness by passing the Honest Budget Act. The better news is that the CLASS Act’s spectacular failure provides a significant boost for the Republican effort to repeal Obamacare in its entirety.

UPDATE: GOP lawmakers weigh in.

Senate Minority Leader Mitch McConnell (R., Ky.):

The Obama administration today acknowledged what they refused to admit when they passed their partisan health bill: the CLASS Act was a budget gimmick that might enhance the numbers on a Washington bureaucrat’s spreadsheet but was destined to fail in the real world.

However, it is worth remembering that the CLASS Act is only one of the unwise, unsustainable components of an unwise, unsustainable law.  We should repeal the CLASS Act and the rest of the health spending law and replace it with the type of common-sense reforms that lower costs and Americans support. 

Sen. John Thune (R., S.D.), who led a Congressional investigation into the program:

This is a victory for the American taxpayer and future generations. After ignoring repeated warnings from my Republican colleagues and me about the fiscal solvency of the CLASS Act, the Obama Administration jammed Obamacare through Congress in order to score a political win. Now, over a year later, the administration is finally admitting the CLASS Act entitlement is unsustainable and cannot be implemented. Simply setting aside the program for the near-term is not enough. Repeal is the only solution to ensuring American taxpayers will not be on the hook in the future for this disastrous entitlement.

House Budget Committee chairman Paul Ryan (R., Wis.):

Today, the Obama Administration finally surrendered to reality: Health and Human Services Secretary Kathleen Sebelius has informed Congressional leaders that she ‘does not see a viable path forward for CLASS implementation at this time.’ The smoke and mirrors that the Democrats employed to sell their health care overhaul are finally falling away, one broken promise at a time.  When all of these gimmicks are stripped out, the new law would add hundreds of billions of dollars in red ink over the next decade, as health-care costs send the debt spiraling out of control. Now it is time for Congress to do the responsible thing: Repeal the disastrous new law and replace it with true, patient-centered reforms.

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