Just as the troubling details surrounding Solyndra, the failed solar-panel company that received a $535 million government-back loan, were starting to come to light, it appears the Obama administration may have another explosive scandal on its hands. According to internal documents uncovered by a congressional investigation, the Obama administration, in its desire to insert a new long-term care insurance plan into the Obamacare legislation, ignored repeated warnings about the program’s financial sustainability, instead relying on budgetary smoke and mirrors to mask its true cost.
The Community Living Assistance Services and Supports program, or CLASS Act, long touted by the late Sen. Ted Kennedy (D., Mass.), created an optional, government-subsidized, long-term care insurance plan that would pay out daily or monthly benefits to individuals who may become disabled or unable to perform daily tasks such as dressing, cooking, and grooming.
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.
As the investigative report reveals, administration officials had been warning about the program’s long-term sustainability in the months before the law was passed, yet ignored, and in some cases marginalized these concerns as the White House pushed ahead with its landmark legislation. E-mails uncovered by the working group show that such concerns were first raised back in May 2009, nearly a year before Obamacare’s passage, by Medicare chief actuary Richard Foster. “At first glance this proposal doesn’t look workable,” he wrote in an e-mail to other HHS officials. “Due to the limited scope of the insurance coverage, the voluntary CLASS plan would probably not attract many participants other than individuals who already meet the criteria to qualify as beneficiaries.” Even so, Foster estimated that the CLASS program would have to enroll about 234 million people, which is greater than the entire U.S. population aged 20 and above, in order to sustain itself.
In late June, Sen. Kennedy’s office sent Foster two studies purporting to show that the CLASS would actually reduce the deficit. Foster remained unconvinced. In another e-mail to an HHS official, he wrote: “I’m sorry to report that I remain very doubtful that this proposal is sustainable…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.” Foster noted that one of the studies was based on the assumption that the CLASS program would be mandatory, as opposed to voluntary. He said the numbers might ultimately work in that case, but that’s not what the administration was proposing.
The second study, commissioned by the AARP, relied on wildly optimistic estimates regarding participation in the program. For instance, it assumed that nearly 50 million individuals would join it, far greater than the current population of private long-term care insurance subscribers. But even with these unrealistic assumptions, the AARP study concluded that the CLASS program as designed “will ultimately lead to…an unsustainable situation with respect to the program’s design flaws.”
Foster tried to air his concerns with top HHS staff and others who were intimately involved in crafting the heath care legislation. “As you know, I continue to be convinced that the CLASS proposal is not ‘actuarially sound,’ despite Sen. Kennedy’s staff’s good intentions,” he wrote in an Aug. 14, 2009 e-mail to the CMS Office of Legislative Affairs. Shortly thereafter, there appears to have been a concerted effort to marginalize Foster, if not remove him from the process entirely. On Sept. 10, 2009, a top HHS official relayed in an e-mail that a senior Democratic staff member “decided she does not think she needs additional work on the actuarial side.” Days later, another e-mail declared that “per CBO [the program] is now actuarially sound.”
Even with Foster out of the picture, soon enough, officials within HHS began to sound the alarm in regard to the program’s sustainability. One HHS staffer wrote said the CLASS Act “seems like a recipe for disaster.” But that didn’t prevent top HHS officials like Richard Frank, deputy assistant secretary for planning and evaluation, from championing the program in public. Speaking at a Kaiser Family Foundation even in October 2009, he said “we’re entirely persuaded that reasonable premiums, solid participation rates, and financial solvency over the 75-year period can be maintained.” Despite such public pronouncements of confidence, HHS official continued to question the programs viability in private well into early 2010.
But that’s not all. Because HHS officials were well aware of the massive financial burden the CLASS program was likely to impose on the federal government, they sought ways to shift the costs to other entities, such as employers and state governments. E-mails reveal that HHS officials suspected that many employers would be reluctant to bear the “additional responsibilities” of compliance with the CLASS plan, and feared that low participation among employers would lead to fewer individuals signing up for the program.
As a potential remedy, they sought (unsuccessfully) to amend the final legislation to include “a requirement that employers inform their employees about the CLASS program.” Other, more burdensome options were floated, such as a “mandated offer” approach whereby “employers over a certain size (e.g., 50 employees) would be required to offer enrollment.” What the uncovered documents do not reveal is any attempt by HHS to assess the additional cost, in the form of an unfunded mandate, that employers would be forced to take on under such an arrangement. As the new health care law is written, it would be possible for Secretary Sebelius to impose such requirements as this when she formally establishes the program’s regulatory regime.
States too will face significant new requirements relating to the CLASS program. For example, they are required within two years to “designate or create entities to serve as fiscal agents for CLASS beneficiaries,” a provision HHS officials acknowledged was “perhaps fatally [flawed]” and would “create significant new burdens on the states.” And yet they provided no estimates as to the cost of these new requirements.
Understandably, both employers and state governments have expressed a great deal of concern in regard to the program and its accompanying “burdens,” both financial and administrative. But since when has that ever given this administration pause when it comes to forcing through its agenda?
“The deception exposed in this report paved the way to imposing additional financial burdens on taxpayers, businesses, and cash-strapped states — at a time when they can least afford them,” Sen. Jeff Sessions (R., Ala.), ranking member on the Senate Budget Committee, said in a statement. “The unsustainable CLASS program should be immediately repealed and, without a doubt, this troubling evidence warrants further inquiry.”
“The CLASS Act is a ticking time bomb that will place taxpayers’ money at risk due to fatal flaws in the entitlement program’s design and structure,” added Sen. Thune. “The American people had a right to know the information revealed in our report before they were put on the hook to pay for this massive new entitlement program.”