ObamaCare's Disastrous New Long-Term Care Entitlement

The Obama administration makes a CLASS of itself.

When ObamaCare passed, the Obama administration's top officials repeatedly assured the public that it was not just fiscally sound but fiscally responsible: a path toward long-term deficit reduction and better health care budgeting. What the White House and its allies neglected to mention was that they'd tacked an unworkable, unsustainable $70 billion long-term care entitlement onto the bill in order to dress up its official budget projections. It's called the CLASS (Community Living Assistance Service and Supports) Act, and it helped ObamaCare score big on decade-long deficit reduction estimates. Its designers even promised that it would be self-sustaining for at least 75 years.

It's not. Starting around 2030, the program will spend far more than it takes in, leading to tens of billions in new deficit spending with each successive decade. Whose idea of fiscal responsibility was this?

President Obama signed the health care overhaul into law, but it was former Sen. Ted Kennedy (D-Mass.) who made the push to include CLASS in the package. According to Timothy Carney of The Washington Examiner, Kennedy's former aide Connie Garner played a key role in crafting the legislation governing the program. Just two months after the law passed, Gardner left Capitol Hill to take a job as the CEO at a new advocacy coalition funded by long-term care industry groups and dedicated to—you guessed it—lobbying Congress on the CLASS Act. CLASS may cost America dearly. But it seems to be paying off for Gardner and her clients.

It also paid off for the Obama administration in the health care fight. When the Congressional Budget Office scored the budgetary effects of the law, it counted the $70 billion in premium payments expected to be collected in the program's first decade toward the law's alleged deficit reduction—despite the fact that those premiums were eventually supposed to pay for the program's benefits.

The White House conveniently failed to notice the program's problems during the health care debate. But last fall, the president's own fiscal commission officially called for a total repeal of the program. At this point, even Obama's top health care officials won't stand behind the program's worthless fiscal design. "While the law outlined a framework for the CLASS Act," Health and Human Services Secretary Kathleen Sebelius told members of Congress in February, "we determined pretty quickly that it would not meet the requirement that the act be self-sustaining and not rely on taxpayer assistance." Whoops!

Here's how the program works (or rather how it doesn't): Workers pay into the program at regulated rates determined by bureaucrats at the Department of Health and Human Services, which will be prohibited from taking individual health history into account. For the poor, the rate is set at a flat rate of $5 per month, adjusted for inflation over time. Workers who pay in for five years and develop difficulty with daily living will then be eligible for a cash benefit of a minimum of $50 each day to spend on care—a benefit designed to rise with inflation. There's no limit to the amount of cash the benefit can pay out, and it lasts as long as the beneficiary is alive and eligible.

The Obama administration claims the program is only for those who want to join, but that's true only in the strictest sense. According to John Inglehart, a founding editor of the health policy journal Health Affairs, "all adult Americans would effectively be 'nudged' into joining" the program. It's technically voluntary, in other words, but the Obama administration is already convinced that everyone will want to join. On the other hand, maybe they will! After all, the biggest problem with the program is that the benefits it's projected to pay out vastly exceed the premium revenues it's expected to collect. Plenty of beneficiaries (though not all), then, stand to more than make their money back.

Why is the Obama administration so keen to get everyone to join? Because the most likely problem the program faces is the specter that haunts all insurance pools: the death spiral. According to researchers at Boston College's Center for Retirement Research, it's a problem to which CLASS is particularly susceptible. Because premiums won't be based on health status, the program is likely to prove particularly appealing to the sick. The sicker the population, the higher the premiums required to pay for their benefits. But higher premiums will drive away healthy individuals who need benefits less, resulting in an even sicker insurance pool, on average, which in turn will mean even higher premiums. From there, the insurance merry-go-round spins further out of control: higher premiums, reduced enrollment, a sicker and sicker population, and so on and so forth until the program is composed almost entirely of very sick, very expensive individuals. Indeed, in an absurd twist, the program's broken financing model could hasten the death spiral's ugly cycle by scaring away healthy individuals who might otherwise have bought in.

Sebelius now claims she'll enact program patches in order to right the program's fiscal outlook. One possible fix? Yet another mandate much like ObamaCare's existing requirement to purchase health insurance. Asked about it directly, Sebelius has refused to rule out the possibility. But even with policy fixes, the Boston College researchers warn that "premiums may never reach an affordable level for middle-class households." Far better to do as the president's commission recommended and repeal the program entirely; CLASS dismissed.

Peter Suderman is an Associate Editor at Reason magazine.