Advancing a Free Society

The CLASS Act’s Demise Undoes the Fiscal Argument for the 2010 Health Care Law

Monday, October 24, 2011

HHS Secretary Kathleen Sebelius has announced that she is pulling the plug on the “CLASS Act”, a long-term care insurance program contained in the health care law pushed through Congress in 2010. Today E21 published my piece explaining why this undoes the fiscal argument originally made on behalf of the law.

The demise of CLASS reflects on three criticisms previously offered by opponents of the bill:

  1. The CLASS program was a gimmick employed to show a positive budget impact during the ten-year window (as its start-up revenues rolled in), though the program was widely acknowledged to be untenable.
  2. The larger health bill’s favorable ten-year budget score was misleading; it was created by postponing its most significant costs until 2014. The bill appeared to have a positive effect only because ten years of savings provisions were being netted against six years of new costs.
  3. The net favorable score resulted from offsetting certain new spending with uncertain future savings. In particular, critics questioned whether Congress would ever follow through with certain Medicare payment reductions.

The demise of CLASS substantiates the first criticism and makes the last more salient.  What many have missed is that the end of CLASS also proves the criticism concerning the timing of savings and expenditures to have been right.

Without the CLASS Act the bill’s total positive score from 2010-2019 would have been attributable entirely to the two years of 2013 and 2014 – notably, before its spending provisions had fully kicked in.  Health care reform would have been scored as a net budget positive in the first five years of the ten-year window and a net negative in the later five years – that is, when it was fully in effect. Advocates' claims of a positive long-term impact would have hinged entirely upon unquantifiable savings claims in the second decade and beyond, and on a thin $8 billion (1% of the bill’s 10-yr cost) plus in 2019 alone -- after a net minus in each of 2016-2018. Given the uncertainty of the long-term Medicare savings, none of these claims could have been considered reliable.

Updating, the law doesn’t look better now -- it looks worse. Its projected positive impact without CLASS has been lowered and its projected negative impact over 2015-2019 has worsened.  CBO's updated picture of the law turns rosier only when we bring 2020 and 2021 into the picture -- and bring enormous projected Medicare cost reductions along with them. Unfortunately, this is precisely the point in time at which many experts, including Medicare's own actuary, have expressed skepticism that such savings will be realized.

The inclusion of CLASS was central to advocates’ claims in 2010 that expanding federal health coverage would somehow improve rather than worsen the budget outlook. And had it not been for the CLASS gimmick, critics’ arguments about the other budget gimmicks used to pass the law would have been substantiated as well.

For the numbers, graphs and information that substantiate all of this, see the full article at e21.