- The Washington Times - Sunday, December 6, 2009


Well known is the Democratic plan to create a new health insurance program - modeled after Medicare - to compete against private coverage. But buried deep in the 2,074-page draft legislation released last week by Sen. Majority Leader Harry Reid of Nevada, is another insurance option for millions of Americans.

In fact, this one has all the markings of a new entitlement and - even before its enactment - doesn’t appear to be financially sustainable.

The other insurance scheme is CLASS, or “community living assistance service and supports.” The aim, to use non-Beltway language, is to help Americans with the high cost of long-term care or assisted living.

CLASS would be a government-run, voluntary insurance to cover the costs of such care. It’s in both the House and Senate health-reform proposals, adapting a concept Massachusetts’ late Sen. Edward M. Kennedy introduced this spring.

Granted, assisted living might become the next great health crisis. For years, policy experts noted that aging baby boomers have pushed up the cost of health care - older joints sometimes need replacement, for instance.

But as baby boomers age further, they will need more than, say, the occasional day procedure, graduating into something more geriatric. Complicating the situation: Loose Medicaid eligibility rules have made it easy for a generation to hide assets and still qualify for government support - the so-called “two Mercedes” rule. Medicaid estate planning is so common that a U.S. senator once confessed to hiding her mother’s assets so she could qualify for the government program.

While states and Congress have toughened up rules in recent years, few Americans have opted for private long-term care insurance.

CLASS is presumably meant to solve this problem. Just as private insurers already do, CLASS means the government can take your money now in exchange for long-term care insurance. But in a private insurance plan, “pay now for problems later” means just that: A company puts enough of your money aside to cover future expenses, then profits if it can invest that money to create a surplus over and above the final actual costs.

In Washington, government-run “social insurance” works a little differently. Congress loves pay-as-you-go programs, which price premiums for today’s likely costs, not tomorrow’s potential risks. Politicians look generous because pay-as-you-go premiums usually force the next generation of Americans to pay the true cost of today’s entitlements.

For example, the base payroll tax rate for Social Security is now 12.4 percent, quite a leap from the original rate of just 2 percent. Congress raised rates to cover repeated shortfalls between promised benefits and inadequate premiums.

We face similar challenges with Medicare, after Congress broadened health coverage without proper financing. Aging voters demanding better Medicare hurt the economic interests of their own children, who, in turn, must pay higher taxes and finance larger public debts to fund the benefits of their parents.

When it priced the Senate health bill, the Congressional Budget Office (CBO) noted that CLASS “premiums would be set to cover the full cost of the program as measured on an actuarial basis” and estimated that incoming premiums would cut Washington’s projected deficit by $72 billion by 2019.

But later in the same report the CBO stated that: “In the decade following 2029, the CLASS program would begin to increase budget deficits.” In other words, the Senate health bill looks more fiscally responsible than the House bill because it front-loads windfall cash flow from CLASS, then backloads cost and risk to your grandchildren long after this Congress is safely (and comfortably) retired.

And this is probably the rosy version. After all, just as with the other voluntary public insurance plan in Obamacare, no one has a clue how many will sign up. So no one can predict the risk profile of likely beneficiaries.

What if new assisted-living technology increases the price of benefits?What if CLASS beneficiaries are less healthy than predicted? In the private market, insurance companies carry these risks. Under CLASS, taxpayers bear the risk of a shortfall - and shortfalls have appeared for every social insurance plan ever created by Washington.

Even by the careless standards of pre-Obama Washington, a new entitlement would get at least superficial congressional scrutiny.

Obamacare is different: It creates new entitlements on the fly and bypasses real oversight by making the entitlement “voluntary.” While this strategy makes the program seem safer, it actually adds risks by expanding the uncertainties.

When he rose to the presidency, Mr. Obama derided Washington politicians who “kick the can further down the road,” passing costly problems from one generation to the next without the courage to solve them.Yes, assisted living might just be America’s next big health challenge. Kicking another empty can down another bumpy road is not a responsible solution.

Dr. David Gratzer, a senior fellow at the Manhattan Institute is author of “Why Obama’s Government Takeover of Health Care Will Be a Disaster” (Encounter Books, 2009).

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