OPINION:
Health and Human Services Secretary Kathleen Sebelius on Friday called a halt to the implementation of the Community Living Assistance Services and Supports (CLASS) longer-term insurance program, saying there is no “viable path forward … at this time.” That means a key component of Obamacare is dead. True to form, however, the White House is doubling down, insisting that the CLASS program must be preserved. Congress needs to make sure that never happens so this scheme remains buried.
The CLASS Act was supposed to have offered coverage beginning in 2012. Monthly premiums would have ranged from $235 to $391 generally and in some cases would have gone as high as $3,000. In return, the program would provide long-term care daily benefits of as little as $50 per day. That made enrollment in this government-sponsored program an extremely unattractive option for healthy people. Without large numbers of people signed up, the program simply wasn’t viable.
The result is what economists call “adverse selection.” A smaller pool of people sign up for a program, and this pool consists of the people most likely to need services. If healthy people are not attracted to the program, everyone’s premiums necessarily must rise. This sets off a spiral that inevitably causes the program to collapse.
These fundamental problems couldn’t have been fixed with eligibility restrictions on enrollment, as legal challenges likely would have prevented such changes. The law also required that the Obama administration certify that CLASS remain financially solvent for 75 years before it was put into place. Instead, the chief actuary of the U.S. Centers for Medicare and Medicaid Services predicts a deficit starting in 2025 - a mere 13 years in. No wonder Mrs. Sibelius pulled the plug.
The CLASS Act was a boondoggle from the very beginning, including the supposed $86 billion savings it was supposed to contribute to the federal deficit across 10 years, according to estimates from the Congressional Budget Office (CBO). Those “savings” were nothing more than accounting fictions. The program was heavily front-loaded to give the appearance of solvency. As CBO itself acknowledged, “The cash flows under [CLASS] would generate budgetary savings (that is, a reduction in net federal outlays) for the 2010-2019 period and for the 10 years following 2019, followed by budgetary costs (an increase in net federal outlays) in subsequent decades.” Translation: bigger deficits starting in 2020. No wonder CBO has announced that demise of the CLASS Act won’t add to the fiscal deficit.
The good news is that Republicans seeking to repeal the CLASS Act won’t have to seek spending cuts to offset any purported savings. As the 2,000-page Obamacare legislation is being implemented, we see just how troubling an increasingly large number of provisions are turning out to be. After having flunked once already, Congress needs to ensure the CLASS Act doesn’t get a chance to repeat this grade.
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