Congress and the Criminal CLASS
When President Obama signed his contentious healthcare bill, the Patient Protection and Affordable Care Act (PPACA), on March 23, 2010, his administration and a Democratic Congress had spent months convincing many lawmakers, pundits, and voters that expanding subsidized healthcare was not only the right thing to do, but that it would be beneficial for taxpayers in the long term. Fiscal conservatives (including Citizens Against Government Waste) howled that the Congressional Budget Office’s (CBO) 10-year, $210 billion deficit reduction estimate for the bill was wildly overstated. But the CBO is supposed to be a nonpartisan judge, and advocates on both sides of the aisle have long cited its findings as backing for a variety of causes. Accordingly, cries of fuzzy math or budget gimmickry fell on deaf ears.
As it turned out, the skeptics were right: the Community Living Assistance Services and Supports (CLASS) Act, a part of PPACA that was projected to contribute $73 billion in net revenue to the Treasury by the end of fiscal year (FY) 2021, was in fact a ticking fiscal time bomb. CLASS is an insurance program aimed at people who become disabled and require long-term care. Conveniently for its supporters, CLASS was scored by the CBO based on the fact that it will collect payments for five years before paying out benefits to enrollees. For that reason, CLASS looks very good on a 10-year budget horizon; good enough to boost PPACA’s estimated first-decade deficit reduction by almost 50 percent. That was all PPACA’s backers needed to hear.
On July 30, 2009, Sen. Chris Dodd (D-Conn.) called CLASS “one of the most innovative and creative ideas in our bill,” and on December 19, 2009, Senate Majority Leader Harry Reid (D-Nev.) claimed that CLASS was fully paid for “decades and decades into the future.” Such was the tenor of the healthcare debate prior to the passage of PPACA. However, as Sen. John Thune (R-S.D.) pointed out in a September, 2011 report on CLASS, those privy to the details of CLASS’s finances estimated that the program was much more likely to crash and burn almost immediately after its benefits began to flow. The result would be rising premiums and fewer participants – an “insurance death spiral” certain to end in bankruptcy.
In May, 2009, the Center for Medicare and Medicaid Services’ (CMS) chief actuary wrote an email on the proposed CLASS Act in which he predicted that, “While the 5-year ‘vesting period’ would allow the fund to accumulate a modest level of assets, all such assets could be used just to meet benefit payments due in the first few months of the 6th year.” Worse, because the program was designed to be voluntary, the vast majority of enrollees would be those most likely to claim benefits, rather than healthy individuals looking for a hedge against an unlikely future. The CMS actuary estimated that if 10 million people sought to benefit from the program, “About 234 million people, paying premiums of $64 per month, would be needed to cover this cost.”
Emails buried deep in the federal bureaucracy and Republican oppositionists were not the only red flags. On October 27, 2009, Sen. Kent Conrad (D-N.D.) called CLASS “a Ponzi scheme Bernie Madoff would have been proud of.” The next day, Sen. Conrad and six other Democratic senators sent a letter to Majority Leader Reid in which they urged him not to include CLASS in the PPACA, claiming that it “bends the health care cost curve in the wrong direction.”
Fortunately for taxpayers, CLASS has been declared unworkable and has been scrapped, at least for now. Secretary of Health and Human Services Kathleen Sebelius stated on October 14, 2011, that HHS “[has] not identified a way to make CLASS work at this time,” and CLASS received no funding in the FY 2012 HHS Appropriations bill.
But the death of CLASS is something of a Pyrrhic victory for both supporters and opponents of PPACA. For the fiscal conservatives who predicted that CLASS would fail to deliver on its deficit reduction promises, the fact remains that PPACA became law, and CLASS was a big reason why. Getting confirmation more than a year later that a large percentage of the bill’s fiscal benefits were phantoms from the beginning cannot undo the law’s passage. And for supporters, CLASS’s repeal can be interpreted as progressive policy done right. As Mother Jones’ Kevin Drum argued, “Even though it was a liberal program promoted by a longtime liberal icon, HHS analysts eventually concluded that its conservative critics were right and the program as passed was flawed. So they killed it … This is how we all want government to work.”
Drum has a point, and a world without CLASS is clearly better than one where it hangs around to leech off of taxpayers forever. But the disturbing truth remains that people in power who wanted PPACA to pass made it look dramatically more favorable to taxpayers than it really was, and continued to tout CLASS’s solvency long after many lawmakers (including those who went on to vote for PPACA) had admitted its lunacy. Demagogic politicians leveraged the complexity of PPACA to give themselves cover and vote for it, even as they were playing taxpayers. Further, obfuscation and deceit on CLASS raise the possibility that other aspects of PPACA were hastily taped together and polished in order to make the rest of the bill look good in the short run. If so, there could be some more nasty surprises awaiting Democrats in Congress between now and November 2012. CAGW will be watching.
— Luke Gelber
