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CLASS - The Inevitable Fall of Health Care Reform's Chief Budget Gimmick



October 17, 2011

The CLASS Act, a long-term care entitlement tucked deep in Democrats’ health care reform bill, has officially been scratched. From the get go, it was clear that the program was little more than the political equivalent of a deus ex machina – a contrived plot device that abruptly solves what otherwise would be an impossible situation.

It’s generally the sign of a bad writer. In this case it was the sign of a bad bill.

The Democrats’ proposed health care reform bill was a budget buster. At a time when government deficits and the national debt were becoming major concerns to the American electorate, this wasn’t going to help its’ chances for passage.

It appeared Democrats’ had written themselves into a corner. The stimulus bill had done little to justify its exorbitant cost, discretionary spending was soaring, and government-run health care programs were hemorrhaging money. The Patient Protection and Affordable Care Act, despite its name, would not have made a tidy ending to that story. The political narrative was quickly going off the rails. Rather than do some significant editing to the plot, Democrats decided to introduce a deus ex machina.

Namely, they started stuffing the health care bill with all sorts of unrelated or tangentially related things in an attempt to improve its bottom line. While student loan reform was probably the most egregious example, the CLASS Act, was perhaps the most dishonest.

CLASS was doomed to fail. The way it was structured made an “insurance death spiral” inevitable – high premiums and a short vesting period would discourage all but the sickest Americans from signing up, this would drive premiums even higher, further discouraging the young, healthy people needed to keep costs manageable.

It’s not as if nobody foresaw these problems.

“This program is intended to be “actuarially sound,” but at first glance this goal may be impossible,” wrote Center for Medicaid and Medicare Services’ chief actuary in May 2009 “Seems like a recipe for disaster to me,” William Marton, a senior Obama policy official, wrote in October 2009.

The list goes on, but suffice it to say that CLASS’ problems weren’t unexpected.

The troubling part is that Democrats’ threw it in the bill anyway because it provided them an opportunity to game the Congressional Budget Office’s (CBO) scoring rules and make the health care reform package appear more budget friendly than it was. The way CLASS was written it included a five year vesting period, a time in which the government would be collecting premiums, but would be paying out no benefits. Given that the CBO uses a 10-year budget window to calculate deficit projections, the whole thing came up smelling like roses.

This plot artifice served its purpose admirably. The seemingly inextricable problem had been solved. In large part due to budgetary gimmicks like the inclusion of CLASS, the Democrats’ health reform bill received a favorable CBO score, providing an important talking point to use against those concerned about the deficit.

Now, after the final chapter has already been written, the Obama Administration is dismantling his deus ex machina. “Despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time,” wrote Health and Human Services Secretary Kathleen Sebelius in an email to Congress.

Which leaves us with a very bad ending, to an already ugly story.

 


 

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