Health insurance

ObamaCare's Disastrous New Long-Term Care Entitlement

The Obama administration makes a CLASS of itself.

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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.

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  1. I think Rush Limbaugh is right, this thing is designed to fail and when it does the way will be opened to step in with a full on government monopoly system.

    1. Sounds far-fetched to me.

      1. Same here, but how else do you explain the incredible incompetence that plagues the government? Maybe there really is a conspiracy.

        1. Some people want to see the government fail, and actively sabotage its efforts to succeed?

          1. Well, that too.

        2. What incompetence? Incompetence is inability to do your job. You’re assuming their job is to be useful to the general public, sick people etc. If you assume their job is to benefit interest groups that can, say, give them a job as CEO of an advocacy group, they’re doing quite well.

  2. Suderman do you ever get tired of the kabuki of debunking these numbers that no rational person believes and have never predicted actual costs within an order of magnitude?

  3. But we have to pass Obamacare to “bend the cost curve”. Rremember that load of shit liberals put out there during the run up to its passing?

    1. Load of shit? How else was congress going to bend the cost curve up?

  4. “all adult Americans would effectively be ‘nudged’ into joining” the program.

    Curse you Cass Sunstein and your feeble attempts at policy…..crucifixion….good….one cross each!

  5. 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.

    The Ascended One would never allow his minions to deal with someone so obviously self-interested.

  6. 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.

    Geez, that’s in the future. What’s important is can I get my free health care now?

    1. Tell me again, how is this different from the other entitlement program?

      1. It’s a CLASSier program. That’ll make all the difference.

        Do you have puppies and Teh Childrunz!?!?1/??!??!/1/1/1/?!??!?!

        1. “Do you *have* puppies and Teh Childrunz!?!?1/??!??!/1/1/1/?!??!?!”

          That’s such a bad typo I’m almost proud of myself.

  7. ObamaCare: The gift that keeps on giving, er, taking, er, whatever…

    1. Only marginally better than OsamaCare.

  8. Interesting mention of the death spiral. But doesn’t that apply to most health insurance? Nobody wants the high risk people. But then again, insurance that’s just for health people kind of defeats the point as well.

    1. no it doesnt normally happen, because higher risk people are charged more normally to compensate the higher risk.

      The death spiral only happens when everyone is made to pay the same rate. This makes unhealthy people buy more and healthy people buy less. This was why they put the mandate in – because the law also forces the same price on everyone.

      1. The death spiral also normally doesn’t happen as insurance companies invest the premiums; that’s where the profit comes from.
        Ever see the government “invest”, like in auto companies?
        Suffice to say, the government would be bankrupt and in the dock for fraudulent business practices.

      2. “because higher risk people are charged more normally to compensate the higher risk.”

        Except of course that the higher risk people often get a premium that is unaffordable, if they can even get insurance.

        There’s quite a few examples of people with pre-existing conditions that can’t get insurance at any price.

        1. Kroneborge|5.27.11 @ 3:59PM|#
          …”There’s quite a few examples of people with pre-existing conditions that can’t get insurance at any price.”

          What an asinine comment.
          Yes, it’s true; it’s no longer “insurance” if you’re hoping to pay insurance rates for medical care for an “existing condition”.
          Do you hope to buy homeowner’s “insurance” when your house is on fire? How stupid are you?

  9. 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.

    So what you’re saying is that its ingenious. Like every other entitlement program passed, whether by FDR, LBJ, or now BHO, the collection of revenues today that are ostensibly being collected to pay benefits tomorrow gives the administration in power extra cash to fund their profligate present spending with no concern towards the future liabilities incurred in order to collect said revenues.

    This is what government does. It collects in advance and then claims it doesn’t have the money when to provide the services that it collected the damn money for to start.

  10. Who cares????!!!

    When Obama’s elected, he’s gonna legalize weed, close Gitmo, send Dick Cheney to jail and make Cindy Sheehan attractive. And have you heard him speak? He’s soooo dreamy.

    And he’s a Libertarian, too. Don’t you wanna be proud of your country again? Not like when Bush went around touting Soc. Sec. privatization in order to enrich Archer Daniel Midlands at the expense of crippled kids.

    1. WOOOOOOOO!!! OBAAAAAAAMMMMMAAAAAAAAA!!!! WOOOOOOO!!!!!

      1. If I help Obama, he’s gonna help me – I won’t have to worry about payin’ my mortgage no more!

        1. There were some people who seriously thought Obama was going to go full out communist when he got elected. And they thought this was a good thing.

    2. That is right. Sure he wants to socialize medicine and spend through the roof. But he will never get that stuff through Congress.

      And I have always wanted to vote for a black president.

      1. Cavanaugh?

    3. You were doing fine until:
      …”make Cindy Sheehan attractive.”
      Hey, unicorns, OK, but this is just too far beyond belief.

  11. In Russia, healthcare system relies on YOU!

    1. Actually, that sounds about right.

  12. 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

    So, big picture, this is going to end up as another entitlement program, disguised as an “investment”. This approach looks very similar to the propaganda surrounding FICA. Once the CLASS act is mandated, it will be impossible to get rid of, because we can’t cut off the people who “paid into the system.

    1. You know who else proposed programs that are impossible to get rid of….

      1. He’s right, you know.

        1. Be gone spoof!

  13. Also, when do we hit Peak Healthcare? And when does the Healthcare Bubble burst?

    Oh, wait – we don’t KNOW – THAT’S WHAT MAKES IT SO EXCITING!!

    1. Maybe we can get an apocalypse out of the deal this time. I have always wanted to have one of those snappy post-apocalyptic out fit, I have already decided on mine, is totally football pads and a green Mohawk for me!

  14. Maybe we will be fortunate enough, to be blessed with a health care system as effective as this.

    Doctors are prescribing drinking water for neglected elderly patients to stop them dying of thirst in hospital.

    1. I thought this had escaped from the Onion thread. Sheesh.

      1. Gut-wrenchingly disgusting. I hope Parliament burns to the fucking ground.

        Our country’s headed the same way.

        1. They’ll probably just use this to justify more spending.

          In my world, the perscribed glass of drinking water is always half-empty.

  15. What I want to know is, what is the budget of the office or department that must employ thousands of the top minds in acronym making that comes up with these names for these Acts?

    1. Ministry of Propaganda?

      Goebbels did make it out of Germany alive. And he works for us now.

  16. While the program is unsound, it isn’t technically a death-spiral situation. Death Spirals occur when selection that takes place on the part of uninsurable individuals cannot be underwritten. Rates that are initially sound then become inadequate. In this case, the rates are inadequate to start with. Because the claims are subsidized by the taxpayer (or the Chinese, but that’s another story) there is no reason for individuals to leave the pool, and hence no death spiral.

    1. Reason is for Pseudo-economics that bashes Obama, not actual economics.

      1. Those orbs in your mouth aren’t marbles, buddy.

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  19. One of the worst fiscal nightmares facing our country is the reality of long-term care. Most Americans still think that Medicare covers the cost of long-term care.

    The CLASS Act helps to address this problem by making a very clear statement: You have to pay for your own long-term care. You either have to pay for your own long-term care by using your savings, the average $50 per day CLASS Act benefit, long-term care insurance, or a combination of these.

    The CLASS Act will not be an option for those who are already disabled (and unable to work) or those who are retired and do not want to work.

    Most of the 10 million Americans who own LTC insurance own it because they’ve seen family spend down their assets before qualifying for Medicaid. The CLASS Act will help alert the rest of the country to the fact that they need to plan for their future long term care needs.

    There’s a lot of confusion about the CLASS Act. Here’s a list of 13 facts about the program that are tucked away in the legislation:

    http://bit.ly/13_Facts_About_CLASS_Act

    Scott

    1. Your link takes me to a porn site, though.

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