The Agenda

Charles Blahous on CLASS and the Fiscal Case for PPACA

My Economics 21 colleagues have just published a column by Charles Blahous that deserves wide attention. As Blahous explains, defenders of the new health law have described the demise of CLASS as a fairly minor event:

Supporters argue that the CLASS Act was a peripheral feature of health care reform, that the law will improve federal finances even without it, and that its suspension was actually an example of the process working as it should.

Yet as he goes on to explain, the CLASS provisions were crucial to the political case for PPACA as they dramatically improved the CBO score of the legislation. The notion that PPACA was deficit-improving was often deployed by the Obama administration. Critics observed that this reflected the fact that the Medicare doc fix, an important part of the broader effort to get medical providers on side, was not included in the legislation while various revenue-enhancing measures, including CLASS and student loan reform and a number of small-bore tax provisions, were included.  Furthermore, proposed cuts to Medicare provider payments were widely seen as problematic and unlikely to stick. 

Unfortunately for critics of the new health law, this was a critique that required sustained attention as it had several moving parts. Defenders of PPACA found it relatively easy to ignore or otherwise blunt these charges, choosing instead to focus on more inflammatory attacks on PPACA from the populist right, e.g., the “death panels” charge. This, in turn, made advocates of PPACA seem more judicious and reasonable than critics, particularly to elite audiences otherwise unfamiliar with concerns that flowed from the way PPACA had been assembled. An important part of the story is that the president’s OMB director at the time, Peter Orszag, had previously served at CBO, thus giving him valuable insight into the limitations of CBO’s scoring methodology. 

Now that CLASS has been abandoned, Blahous observes the following:

Without the CLASS Act the bill’s total positive score from 2010-2019 would have been attributable entirely to the two years of 2013 and 2014 – notably, before its spending provisions had fully kicked in. …

Had it not been for CLASS, health care reform would have been scored as a net budget positive in the first five years of the ten-year window and a net negative in the later five years – that is, when it was fully in effect. The Orszag-DeParle claim of a positive long-term impact would have hinged entirely upon unquantifiable savings claims in the second decade and beyond, and on a thin $8 billion (1% of the bill’s 10-yr cost) plus in 2019 alone — after a net minus in each of 2016-2018. Given the uncertainty of the long-term Medicare savings, none of these claims could have been considered reliable.

I strongly recommend reading Blahous’s column, as it provides valuable context — the explicit claims made by the Obama administration, the recognition of the central importance of CLASS to improving PPACA’s budget numbers, etc. 

It is also worth noting that a number of conservative proposals suffer from similar flaws. The Ryan Medicare proposal, which we’ve discussed at length in this space, explicitly promises to place premium support for the purchase of private insurance through a reformed Medicare system on a fixed budget that will grow with inflation. This generates enormous long-term savings. Yet it also shifts the risk of medical cost growth from taxpayers to Medicare beneficiaries, which raises real questions of political sustainability. PPACA, in a similar but less transparent vein, is premised on the notion that the success of its provider reforms will allow the federal government to meet the cost of providing a Medicare defined benefit at lower cost. One Medicare proposal that doesn’t suffer from this flaw is Yuval Levin’s confident market solution, which has the virtue of acknowledging that it rests on a big bet about the future of the U.S. health system.