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Morning Bell: The Latest Obamacare Implosion

Posted By Ericka Andersen On September 23, 2011 @ 9:17 am In Obamacare | Comments Disabled

Inefficient programs that don’t solve problems and are passed against the will of the American people seem to be the Obama Administration’s forte. Now their high-minded aspirations of a health care revolution are quickly unraveling as fatal glitches in Obamacare become apparent.

Next up for implosion? The Community Living Assistance Services and Supports Act, otherwise known as the “CLASS Act,” which creates a government-run long term care insurance program too costly to sustain. At a time when entitlement programs in America have spun out of control, liberal proponents of Obamacare were pushing a new one that had no hope of staying afloat. Now, they are trying hide the fact that they were wrong as another bungling layer of Obamacare is exposed.

From its creation, the CLASS Act was completely unsustainable as written into law. The problem? Due to the effects of adverse selection, the program would charge high premiums that would deter less risky individuals from participating. Indeed, participating in the CLASS program would only appeal to those in poor health expecting to need long-term care in the future, further escalating premiums.

Due to its design, it was clear to Medicare actuaries and even liberal Members of Congress that CLASS would fail before it began. Like so many other aspects of the struggling Obamacare law, this one’s flaws are abundantly clear. Brian Blase explains [1] why the CLASS Act is broken and how its ill-conceived design would lead to its inevitable collapse or bailout:

The main problem is that the program’s design will result in a badly skewed pool of participants … This means healthy individuals are less likely to participate because they do not receive credit in the form of a lower premium, like they would if they purchased [long-term-care] insurance in the private market. Instead, CLASS participants are likely to be disabled individuals who are able to work part-time and individuals who anticipate future [long-term-care] needs.

Moreover, the adverse selection problem is exacerbated because individuals earning below the poverty line are subjected to only a $5 monthly premium, and less healthy people are much more likely to be below the poverty line. The artificially low premium for them means that premiums will have to be much higher for others, which will diminish overall enrollment in the program and worsen its long-run solvency. The poor design of CLASS almost guarantees that the program will collapse or need a bailout.

Last week, Heritage reported on internal emails [2] sent prior to Obamacare’s passage warning the Obama Administration of CLASS’s impending disaster. While former House Speaker Nancy Pelosi and friends were frantically shoving the 3,000 page health care bill through Congress, they were ignoring vital information about a program that was actuarially unsound and completely unworkable. In fact, as Heritage’s Lachlan Markay reported [2], federal health experts told them via email that CLASS would result in an “insurance death spiral.” Congress passed it anyway.

Health and Human Services secretary Kathleen Sebelius has since stated that CLASS is “totally unsustainable” and “financially unsound.”  The Department claimed it could solve these problems using its administrative authority, but the only way CLASS could possibly survive would be via a taxpayer bailout, varying premiums according health status, or by mandating worker participation–none of which are acceptable options. It’s time to admit they are fighting a losing battle.

Bob Yee, chief actuary for the Health and Human Services office that administers the CLASS Act, recently left the office after being told his services weren’t needed. He told The Wall Street Journal [3] that other office staffers were being reassigned.

HHS is subsequently denying that they are killing the CLASS Act despite no longer having any employees working in its office. It’s likely that the Administration has finally come to the realization that CLASS is beyond help.

A bicameral group of Republican Members of Congress are demanding answers in an oversight letter sent to HHS [4] requesting information on their latest moves and what they knew about CLASS before Obamacare became law. Given CLASS’ financial instability, James Capretta and Brian Riedl explain [5] that Congress’ best move is to repeal the law instead of piling debt upon debt with yet another unsustainable entitlement:

CLASS is destined to run short of funds, creating pressure for another massive taxpayer bailout. The biggest threat to the long-term prosperity of the country is the massive unfunded liabilities for the nation’s major entitlement program. The last thing Congress should be doing is adding to the burden of future taxpayers, which is why CLASS Act repeal is the most fiscally responsible—and ethical—course to follow.

So while HHS tries to cover their tracks by claiming CLASS is still being analyzed, it’s clear that the only responsible thing for them to do is admit they were wrong in the first place and end this awful program before it’s too late. And more importantly, Congress should repeal Obamacare before the biggest implosion of all hits the American people.

Quick Hits:


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/09/23/morning-bell-the-latest-obamacare-implosion/

URLs in this post:

[1] Brian Blase explains: http://www.heritage.org/Research/Reports/2011/03/Secretary-Sebelius-Cannot-Fix-CLASS-Program

[2] reported on internal emails: http://blog.heritage.org/2011/09/15/emails-show-liberals-pushed-class-act-despite-experts-warnings/

[3] The Wall Street Journal: http://blogs.wsj.com/washwire/2011/09/22/long-term-care-program-in-jeopardy/

[4] oversight letter sent to HHS: http://republicans.energycommerce.house.gov/Media/file/PDFs/092211jointltrtohhsclass.pdf

[5] explain: http://www.heritage.org/research/reports/2010/07/the-class-act-repeal-now-or-face-permanent-taxpayer-bailout-later

[6] passed a $3.7 billion disaster aid bill and a stopgap spending measure: http://www.usatoday.com/news/washington/story/2011-09-23/house-spending-vote/50522368/1

[7] sent the stock market tumbling yesterday: http://online.wsj.com/article/SB10001424053111903791504576587150257111860.html?mod=WSJ_hp_LEFTTopStories

[8] Pakistan’s spy agency played a direct role: http://www.nytimes.com/2011/09/23/world/asia/mullen-asserts-pakistani-role-in-attack-on-us-embassy.html

[9] led a walkout of more than 30 countries: http://www.time.com/time/nation/article/0,8599,2094507,00.html?iid=pf-main-mostpop1

[10] President Obama’s “green jobs” dream has gone bust: http://blog.heritage.org/2011/09/22/lunch-with-heritage-online-chat-on-green-jobs/

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