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NRO’s health-care blog.

Dear Deficit Commission: Repealing CLASS Is Not Enough



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President Obama’s debt-reduction commission missed an opportunities to move the fiscal debate forward by not going far enough to address Obamacare’s budget impact. We are already experiencing record budget deficits: Trillion-dollar deficits are forecast for the foreseeable future, and baby boomers start turning 65 next year. To create new entitlements or expand old ones now is irresponsible public policy.

The entitlement that the commission rightly advocates revamping or repealing is Obamacare’s Community Living Assistance Services and Support (CLASS) Program, a new government-run program for long-term care. According to the Commission:

[The program’s earliest beneficiaries will pay modest premiums for only a few years and receive benefits many times larger, so that sustaining the system over time will require increasing premiums and reducing benefits to the point that the program is neither appealing to potential customers nor able to accomplish its stated function. Absent reform, the program is therefore likely to require large general revenue transfers or else collapse under its own weight.

CLASS was included in Obamacare because it made its ten-year cost projection look better. No benefits will be paid until 2017, but the premium payments begin in 2012. That’s five years of pure gravy to government accountants. Senate Budget Committee chairman Kent Conrad (D., N.D.), however, described CLASS as “a Ponzi scheme.”

Virtually every actuary who analyzed CLASS concluded it is likely to suffer from adverse selection (an overabundance of unhealthy and disabled individuals in the risk pool) because of serious design flaws. Many of these actuaries expressed concern that CLASS would lead to spiraling premium increases or a taxpayer-funded bailout. The commission clearly understands this problem. If the next Congress does too, it will repeal the CLASS program.

Unfortunately, the commission turned a blind eye to Obamacare’s other fiscal time bombs. According to the Center for Medicare and Medicaid Services (CMS), Obamacare will expand Medicaid coverage by 20 million individuals. The estimated six-year (2014–19) cost: more than $400 billion. CMS further projects that Obamacare health-insurance subsidies will cost more than $500 billion over that same period.

About half the people expected to gain coverage under Obamacare will get it through Medicaid, a joint federal-state program. Most of the rest will receive generous government subsidies to buy private coverage. Who foots the bill for this? Taxpayers, of course. The Medicaid expansion and subsidy costs work out to an average increase in tax liability of about $2,000 annually for a family of four.

Medicaid is loaded with problems, but perhaps the key one relevant to the expansion, which mostly impacts childless adults, is related to poor quality of care. One study found that Medicaid patients received fewer evidence-based therapies than patients with private insurance coverage. A University of Virginia study of nearly 900,000 major operations in the United States found that surgical patients on Medicaid were 13 percent more likely to die in the hospital than patients without insurance, even controlling for demographic factors and health status.

Despite Medicaid’s poor track record — and the fact that state budgets are already squeezed tight by rising Medicaid costs — Obamacare expands national enrollment by a third. It requires states to enroll everyone in a household below 138 percent of the federal poverty level (about $30,500 for a family of four). This has prompted several states to consider opting out of Medicaid.

If states — which will bear at most 10 percent of the costs of the expansion in population — fear the expansion, the federal taxpayers who will bear at least 90 percent of that cost should be petrified.

The subsidies are potentially more harmful to the nation’s long-term fiscal health than the Medicaid expansion. Their generosity (households of four earning up to about $90,000 would qualify) will profoundly alter individual behavior in ways both expensive and unfair to taxpayers. It will encourage many to retire early, work and invest less, or transition to the black market to hide income.

Repealing CLASS is a start, but Congress must seriously reconsider the entire health-care bill, paying particular attention to its two most expensive provisions: the Medicaid expansion and the health-insurance subsidies. Beyond their exorbitant price tags, these programs increase the ranks of those dependent on government by tens of millions of people.

Better to unwind these policies now, before a generation of people comes to depend on them.

Brian Blase is a policy analyst at the Heritage Foundation’s Center for Health Policy Studies.



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