If you don’t know what the CLASS Act is, you are not alone. CLASS stands for the Community Living Assistance Services and Supports Act. It was enacted as part of Obamacare, but, given all of the other issues on which attention was focused at that time, little was said about CLASS. It has been described as “an optional, government-backed, long-term care insurance program that would pay a daily or monthly benefit to enrolled subscribers if they become unable to perform activities of daily living, such as dressing, meal preparation, and personal grooming.” It is a brand new insurance entitlement, almost overlooked among the other provisions of Obamacare.
While CLASS didn’t get a lot of publicity, it played a fairly significant role in convincing Congress to adopt Obamacare. This is because the Congressional Budget Office scored CLASS as generating a net of $70 billion in deficit reduction over the next ten years. This helped to offset, on paper, the other crushing costs of Obamacare.
This supposed $70 billion in savings was, of course, entirely illusory. It was an artifact of the Obama administration’s typical budget gimmicks. A report issued earlier this month by a working group of the United States Congress in which Senator John Thune played a leading role explained the Obama administration’s deception:
Because the program requires a five-year vesting period before subscribers can collect any benefits, the Congressional Budget Office (CBO) calculated that in the first 10 years of the program, the CLASS Act would account for $70 billion in deficit reduction. This calculation was based on the premise that during the initial years of the program, it will take in more revenue in premiums than it pays out in benefits, including the first five years of the program in which no benefits are paid at all.
This $70 billion in CBO-scored “savings” was crucial to garnering support for passage of the health care law. CBO did not make public any estimates on what would happen as the population of subscribers to the program age and the CLASS Act requires increasing amounts of money to be paid out in benefits.
In fact, far from representing any sort of savings, CLASS was known to be a fiscal disaster from the beginning. From an actuarial standpoint, it never made any sense. Nothing about the program would give low-risk Americans any reason to participate in it, and high premiums would inevitably generate a more and more negative selection of participants, leading to a fiscal “death spiral.” This was pointed out early on by Rick Foster, Chief Actuary of HHS’ Centers for Medicare and Medicaid Services. Foster wrote:
I can’t see how there would be enough workers participating to cover the selection costs for those with existing [activities of daily living] limitations plus the costs for the internal subsidies for students and low-income persons. Thirty-six years of actuarial experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue.
(Emphasis added.) But the Democrats were desperate to sell Obamacare to the American people, so, rather than heed Foster’s warnings, they ordered him cut out of the loop.
Foster wasn’t the only one who saw that CLASS was a doomed program. A staffer in the Office of the Assistant Secretary for Planning and Evaluation (ASPE) wrote:
You can get a policy through the [Federal Long-Term Care Insurance Program] (albeit underwritten) with a higher benefit, better inflation protection, and lower premium [than CLASS]. I don’t see any reason why anyone would opt for CLASS if they could pass the underwriting. And if you couldn’t make it through underwriting, you could simply enroll in CLASS to cover some of your current or likely future [long-term care] costs. Seems like a recipe for disaster to me…
But the Obama administration swept the facts about CLASS under the rug.
Now, two years later, no one disputes that the Obama administration’s assurances about the viability of the CLASS Act were false. In fact, in February of this year, HHS Secretary Kathleen Sebelius testified before Congress that the program is “totally unsustainable” in its current form. So much for the $70 billion in “deficit reduction” that was an rationale for adoption of Obamacare!
This morning, the Wall Street Journal reported that the Obama administration appears to be winding down its implementation of the CLASS Act:
Bob Yee, chief actuary for the Health and Human Services office that administers what is known as the CLASS Act, told The Wall Street Journal on Thursday that the office was being disbanded effective Friday. He said officials informed him last week that his services were no longer needed, and that the remainder of the eight-person office is likely being reassigned to other jobs.
“My understanding is they’re slowing down the development” of the program, Mr. Yee said in an interview on his last day in the office. “They’re taking a pause and reducing the amount of work being done.”
In a statement, HHS denied that the office was officially closing but confirmed it’s not certain the program will go forward.
“While the staff of the CLASS office has been reduced, reports that the CLASS office is closing are not accurate,” the HHS statement said. “We are continuing our analysis of this program. As we have said in the past, it is an open question whether the program will be implemented. A CLASS program will only be implemented if it is fiscally solvent, self-sustaining, and consistent with the statute.”
So, notwithstanding the passage of CLASS by Congress, the Obama administration now says that the program may never come into existence. This is a scandal of the first importance: President Obama secured passage of a sweeping program of government medicine by arguing that it was fiscally responsible, and would even help the country’s fiscal situation. A key element of that claim was the purported $70 billion in savings attributed to CLASS. Now the administration admits, apparently, what the experts told it all along: its accounting was fictitious and CLASS is a disaster. So the $70 billion “savings” has been exposed as a fraud perpetrated by President Obama.
This is a bigger fraud, actually, than Bernie Madoff’s, which amounted to around $50 billion. Is that an unfair comparison? Democrat Kent Conrad, Chairman of the Senate Budget Committee, didn’t think so. He called CLASS “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would be proud of.”
Today a group of 13 Republican Congressmen and Senators sent a letter to HHS Secretary Kathleen Sebelius. If you follow the link, you can read the letter in its entirety. The Republicans write:
While we appreciate your acknowledgement that CLASS is unsustainable, it raises the question of why the Administration supported the inclusion of such a fiscally irresponsible program in the PPACA [Obamacare]. …
The accumulated evidence about CLASS’ deficiencies indicates that it was primarily included in the PPACA because doing so improved the legislation’s estimated impact on the deficit. CLASS improved the PPACA’s impact inside the 10-year budget window, only because the government collects premiums for five years before the program pays any benefits. … [B]oth the Congressional Budget Office (CBO) and CMS have estimated that CLASS will exacerbate future budget deficits….
The main purpose of the Republicans’ letter is to ask Sebelius 24 questions, to which answers are requested no later than October 6. Some of the questions can be summed up as “What did you know and when did you know it?” but there is much more than that. Stay tuned.
Most people think the Obama administration is incompetent, and it is. But that isn’t all: the Obama administration has perpetrated a series of frauds on the American people that, in dollar terms, dwarf any similar scandals in our history. If you ask yourself, is the Obama administration more incompetent or more corrupt, I think it is a close question.
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