On Friday, Health and Human Services Secretary Kathleen Sebelius announced that the Obama administration was ending the Community Living Assistance Services and Supports, or CLASS, Act -- enacted as part of President Barack Obama's Affordable Care Act. In doing so, the administration killed off a major provision of Obamacare -- a new voluntary program designed to offer affordable long-term care -- yet the story barely was reported in the press.
The Obama administration did the right thing -- and it could not have been easy. Democrats had been promoting the plan, brainchild of the late Sen. Ted Kennedy, as a means of protecting middle-class families from having to sell their assets if they needed long-term care.
As Sebelius told Congress, her department spent 19 months trying to crunch the numbers to make the law work. "But despite our best analytical efforts," she wrote, "I do not see a viable path forward for CLASS implementation at this time."
Translation: Congress passed and the president signed a bill to create a huge new government program, even though it wasn't remotely doable.
Worse, they were warned. Medicare and Medicaid chief actuary Richard S. Foster reported the "very serious risk" that the CLASS Act would be "unsustainable." The Concord Coalition called it a poorly designed "gimmick." Sen. Kent Conrad, D-N.D., called CLASS a "Ponzi scheme of the first order." To address those concerns, then-Sen. Judd Gregg, R-N.H., inserted a requirement in the enabling legislation that required the CLASS Act be actuarially sound for 75 years. Sebelius could not meet the Gregg requirement; hence, we had Friday's announcement.
First, there's the problem of adverse selection. As Foster explained, "individuals with health problems or who anticipate a greater risk of functional limitation would be more likely to participate than those in better-than-average health." Add modest work requirements and subsidized $5 monthly premiums for students and low-income enrollees and the CLASS Act promises -- my words, not Foster's -- adverse selection on steroids.
It also doesn't help that CLASS benefits are less generous than those offered by private insurers. The primary CLASS benefit is $50 per day, which could go toward in-home or nursing home care. Private plans, the HHS report noted, provide a daily benefit of $150 to $200.
Premium calculations for CLASS started at $354 per month -- a big bite in your average paycheck. So the department explored modifications, including an option to reduce the daily benefit to as low as $10, to bring premiums down to as low as $99 per month.