Administration officials knew before they even passed the CLASS Act that the voluntary long-term care insurance program it created would be fiscally unsustainable, a new report from select House and Senate Republicans shows.
The Community Living Assistance Services and Supports program, or CLASS, became law in March 2010 as a part of Obamacare. Since PPACA passed, CLASS has drawn extensive criticism, with Democratic Sen. Kent Conrad, for example, calling it “a Ponzi scheme of the first order” and Health and Human Services Secretary Kathleen Sebelius conceding the program is “completely unsustainable” — but the new GOP report shows that HHS officials warned for months even before passage that the CLASS Act would be a fiscal disaster. The administration blatantly ignored those warnings and continued to brazenly count CLASS as a cost-saving measure within Obamacare.
The GOP report, produced by a working group led by Sen. John Thune (R-S.D.) states:
As a result of this investigation, it is now clear that some officials inside HHS warned for months before passage that the CLASS program would be a fiscal disaster. Within HHS the program was repeatedly referred to as a “recipe for disaster” with “terminal problems.” [The Centers for Medicare and Medicaid Services] chief actuary stated on numerous occasions that the program was not fiscally sustainable and would result in what he referred to as an “insurance death spiral.”
According to e-mails and other documents obtained pursuant to this investigation, senior leadership of HHS and Democratic staff in the Senate and House reviewed these warnings but did not change the law and did not inform the public of the doubts about the CLASS Act. Instead, the officials continued to claim the program would be sound, sustainable and actually produce budget savings that could help pay for other parts of the health care law.
While there has been little public discussion of the costs PPACA imposes on employers and states, this investigation revealed for the first time the extent to which HHS both anticipated these costs and yet tried to impose even more burdens. The documents we have obtained demonstrate that officials at HHS knew that the CLASS Act would saddle employers and states with, at minimum, a heavy administrative burden. The e-mails also reveal discussions inside HHS about combating low participation in the program by requiring employers to participate. HHS anticipated this mandate could be imposed at some future date, and it is possible they will still attempt to impose such a mandate through regulation.
The AP provides a quick run-down of the warnings issued by administration officials:
The emails show that the first warning about CLASS came in May 2009, from Richard Foster, head of long range economic forecasts for Medicare. “At first glance this proposal doesn’t look workable,” Foster wrote in an email to other HHS officials, some of whom were working with Congress to get CLASS into the health care law.
Foster said a rough outline of the program would have to enroll more than 230 million people — more than the U.S. workforce — to be financially feasible.
But work on CLASS continued, bolstered by a report for AARP that laid out scenarios for implementing the plan. The AARP study also raised financial concerns, although the seniors’ lobby supports CLASS.
In July, Foster tried again. After reviewing the latest information from Kennedy’s office, he wrote HHS officials: “Thirty-six years of (professional) experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue.”
Eventually, the administration just stopped soliciting Foster’s opinion and cited more favorable 10-year estimates from the CBO instead — estimates that, because of their 10-year timeline, couldn’t possibly assess the long-term solvency of the program, but did reveal short-term savings.
But Foster wasn’t the only person to issue warnings.
“Seems like a recipe for disaster to me,” William Marton, a senior aging policy official in the administration, wrote in an October 2009 email. Marton explained his concern that large numbers of healthy people would not willingly sign up for CLASS, creating a predicament in which soaring premiums for a smaller group of frail beneficiaries would destabilize the program.
In other words, CLASS runs the risk of adverse selection: Primarily those people who meet the eligibility requirements for benefits — that is, those folks who can no longer perform daily living activities like dressing, meal preparation and personal grooming — will sign up for the program. Premiums would then need to be high to cover the costs of benefits — and those high premiums would, in turn, discourage healthy individuals from enrolling. Too few enrollees means not enough money to cover the costs of the program. The administration’s answer to that just might be to mandate that employers offer enrollment — when it should be to repeal CLASS.
“This report is further confirmation that the Obama Administration willfully chose to ignore the fiscal insolvency of the CLASS program in order to achieve a political victory by pushing the president’s health care bill through Congress,” Thune said. “The CLASS Act is a ticking time bomb that will place taxpayers’ money at risk due to fatal flaws in the entitlement program’s design and structure. The American people had a right to know the information revealed in our report before they were put on the hook to pay for this massive new entitlement program.”
Sen. Jeff Sessions (R-Ala.), another member of the Republican working group, had similarly harsh words for the administration’s disappointing dismissal of legitimate concerns from the CMS chief actuary and others.
“To advance the president’s healthcare agenda, it appears a deliberate effort was made by administration officials to hide CLASS’s true cost from lawmakers and the public,” Sessions said. “The deception exposed in this report paved the way to imposing additional financial burdens on taxpayers, businesses, and cash-strapped states—at a time when they can least afford them. The unsustainable CLASS program should be immediately repealed and, without a doubt, this troubling evidence warrants further inquiry.”