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BLASE: Obamacare has CLASS, but actuaries see problems
Tucked in the 2,800 pages of Obamacare was the Community Living Assistance Services and Support (CLASS) program — a new entitlement to taxpayer-supported long-term care. It’s set to begin next year.
The American Academy of Actuaries, a collection of serious nonpartisan number crunchers has decried CLASS as unsustainable. The central reason: CLASS is a guaranteed-issue program (i.e., all who apply for coverage must be accepted) that bans underwriting (i.e., premiums cannot vary based on health status). This means that healthy individuals with a relatively low risk of needing future long-term care services will find CLASS premiums to be more expensive than similar private-sector insurance products.
Meanwhile, those who need long-term coverage now and those whose declining health augers for long-term health care in the future will flock to take advantage of what is, for them, an artificially low-cost method of paying for long-term care.
The design problem gets even worse. Individuals below the federal poverty line will pay a monthly premium of only $5. The insurer (in this case the government) will lose lots of money on these individuals. Their low premiums will have to be subsidized with much higher premiums for those above the poverty line. This will further exacerbate an already skewed insurance pool since individuals above the poverty line (who happen to be much healthier on average than people below the poverty line) will be even less likely to participate.
According to the president’s own deficit commission, CLASS should be repealed or radically reworked. Even Secretary of Health and Human Services Kathleen Sebelius has acknowledged that CLASS is fiscally unsustainable and would require a massive infusion of taxpayer funds. However, she claims considerable flexibility to make changes that will place CLASS on firm footing.
Mrs. Sebelius asserts broad authority to change three parts of the program: The automatic enrollment feature, the minimal earnings requirements (about $1,200 a year) for participation and premiums. In truth, she does not have this authority. But even if she did, the “tweaks” she has suggested would not fix its problems. The underlying foundation of the CLASS program would remain unworkable.
The CLASS statute directs the secretary to design a mechanism for automatically enrolling workers in the program. Though Mrs. Sebelius suggests otherwise, this auto-enrollment feature is not optional. If she could change the automatic-enrollment provision, even fewer healthy people would enroll, which would worsen the basic problem.
She is correct in saying that she has authority to adjust premiums — but it is severely restricted. Many individuals, such as those below the poverty line, are exempt from premium increases. Moreover, there is a significant risk that the initial premiums will be badly off. Actuaries are working blind, here. No product like CLASS has ever been offered in the private market (a pretty good indication that the program is fiscally untenable). If the initial premium is set lower than is actuarially appropriate, the program will quickly become insolvent and need infusions of general tax revenue to survive.
The secretary also says she has authority to raise the earnings requirement for participation. The current requirement is extremely low: $1,200 a year for three out of five years. According to separate legislative analyses by both the Heritage Foundation and the Congressional Research Service, the secretary has authority only to lower these requirements — something that would worsen the adverse selection problem.
It is beyond Mrs. Sebelius‘ authority to make the majority of the changes she has mentioned unless Congress first passes additional legislation enabling her to take these steps. Repealing CLASS now would save bureaucrats who are trying to solve an unsolvable problem untold hours of time as well as taxpayers untold billions of dollars.
One final point: It is curious that the Obama administration waited nearly a year after the health care law passed to acknowledge CLASS’ serious problems. The American Academy of Actuaries issued its devastating critique of CLASS in July 2009, eight months before Obamacare passed Congress. Sen. John Thune, South Dakota Republican, had an amendment in the fall of 2009 that would have stripped CLASS from the bill. Moreover, the chairmen of the Senate Finance and Senate Budget Committees, Max Baucus, Montana Democrat, and Kent Conrad, North Dakota Democrat, respectively, were opposed to CLASS.
The insidious reason CLASS was part of the final bill was purely as a budget gimmick. CLASS has a five-year vesting period, where premiums are paid in but no benefits are paid out. Over the 10-year window that the Congressional Budget Office considers in assessing legislation, the vesting period made CLASS appear to reduce the federal deficit by $70 billion. The improved projection that CLASS’ insertion had on Obamacare provided cover for many skeptical lawmakers to support the legislation. CLASS is a testimony to the fiscal shell game employed to win passage of Obamacare.
• Brian Blase is a policy analyst in the Heritage Foundation’s Center for Health Policy Studies.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
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