JONATHAN COHN OCTOBER 17, 2011
The Obama Administration is pulling the plug on CLASS, the long-term insurance program within the Affordable Care Act. The announcement came late Friday, most likely because administration officials hoped to bury the news. They did not succeed, as Republicans and their supporters were all over it.
Here, for example, was Senator John Thune of South Dakota:
After ignoring repeated warnings from my Republican colleagues and me about the fiscal solvency of the CLASS Act, the Obama Administration jammed Obamacare through Congress in order to score a political win. Now, over a year later, the administration is finally admitting the CLASS Act entitlement is unsustainable and cannot be implemented. Simply setting aside the program for the near-term is not enough. Repeal is the only solution to ensuring American taxpayers will not be on the hook in the future for this disastrous entitlement.
Thune has a point – in part. The official budget estimates for CLASS suggested it would save money in the first ten years, accounting for about half of the deficit reduction that the Affordable Care Act was supposed to yield during that time. But the estimates for CLASS were never that reliable. More important, after those first ten years, CLASS was likely to pay out more in benefits than it collected as premiums. For these reasons, conservatives like Peter Suderman who criticized CLASS as unsustainable were right to raise alarms, while liberals like me were wrong to ignore them.
But does that mean the Affordable Care Act as a whole is full of gimmicks? Does it prove, as Thune and others have suggested, that Obamacare is fatally flawed? Hardly. If anything, it strengthens the case for the rest of the law, starting with the provision that conservatives claim to hate most: The individual mandate.
"LONG-TERM CARE" IS A WONKY PHRASE, so let me put it in some terms you might recognize more easily: Nursing homes. Rehabilitation for serious injuries or disabilities. Home health assistance. Basically, it’s any kind of lengthy medical care – typically for the disabled, seriously injured, or very old – that regular insurance does not cover.
If you or a loved one has needed long-term care, you know this already -- and you probably know what a crushing burden the bills for such care can impose. That's because, if you're like most Americans, you don’t have private long-term insurance. The only way for you to get such coverage is through the government, via Medicaid. To qualify for that you have to be poor or become poor, by "spending down" your assets.
There's a whole legal industry devoted to helping people do just that. And, yes, it's created all sorts of opportunities for fraud. But it's not like the private sector will, or can, do any better.
Long-term care is expensive. Very, very expensive. The policies that pay for it will only work if people pay premiums for many years before collecting benefits -- and if, ideally, most of them are healthy when they do so. But nobody thinks to buy this kind of insurance when they are in the 20s or 30s and precious few do when they are in their 40s or 50s. They wait until they’re near the age when they might need it – unless they have to deal with a disability and need it right away. Knowing this, insurers can't offer a product that's worth buying.
"If you want to talk about failure, look at the long-term insurance market over the 25 years and its failure to meet the needs of the vast majority of Americans," says John McDonough, the former Senate staffer and author of Inside National Health Reform. And he's not the only one who feels that way. The Urban Institute's Howard Gleckman, who wrote Caring for Our Parents and knows the subject better than almost anybody, agrees:
Too often, seniors pay for this care—either at home or in an assisted living or nursing facility—until they go broke. Then, they go on to Medicaid—a safety net program that too often provides the wrong care, in the wrong place, at the wrong time. Or, they rely on adult children who struggle with the enormous financial, emotional, and physical stress of caregiving. Or, they get no care at all and either end up in the hospital or die alone. As a society, we are simply unprepared for the crushing financial burden of long-term care services.
The architects of the Affordable Care Act, in particular the late Senator Ted Kennedy, understood all of this, including the actuarial realities. But making long-term care insurance a mandatory part of the Affordable Care Act would have made the health care reform bill even more complicated and, potentially, controversial. So the law's sponsors decided to make the program voluntary -- and called it the Community Living Assistance Service and Supports (CLASS) Act.
They hoped to boost enrollment (and attract younger, healthier people) by selling policies through the workplace and using extensive outreach, among other things. But early on, Richard Foster, the official actuary for Medicare and Medicaid, warned that the plan was unlikely to work – that the enrollment would still be too low to sustain the program.
The administration did not squelch these predictions, as some conservatives would later allege (and as the Bush Administration did with Foster's cost estimates in 2003, when creating the Medicare drug benefit). Foster got to air his concerns, repeatedly. But nor did the administration follow his advice. Instead, they pointed to other estimates suggesting the program would attract enough people to remain stable. (Foster, whom I interviewed for this story, agrees that he was ignored but not silenced, as he had been during the Bush Administration.)
It’s worth noting that, behind the scenes, the administration was never wild about CLASS. Internally several officials argued against including it, precisely because they were worried about the finances and sustainability. But some supported it, partly because the case for action was so unambiguous. Harold Pollack, the University of Chicago professor and regular TNR contributor, put it well when he said "CLASS seeks to address a huge need – helping disabled men and women live with dignity in their own homes."
And skeptical administration officials took solace in the fact that, thanks to a provision inserted by Senator Judd Gregg of New Hampshire, the Secretary of Health and Human Services had discretion to modify the program if, upon further consideration, it appeared unlikely to remain stable. It’s precisely that authority that HHS Secretary Kathleen Sebelius exercised last week. (For more details on the administration's thinking, see Sarah Kliff's account in the Washington Post.)
SO DOESN’T THIS CALL INTO QUESTION THE REST OF THE LAW? It shouldn’t. For one thing, the estimates on long-term care always involved unusually high uncertainty, because the evidence on how such policies work is relatively thin and the insurance product itself was unusual. There’s just wasn't that much experience on which to base actuarial models. Foster’s projections looked awful but other credible ones, like those from the Congressional Budget Office, did not. (The two had substantially different estimates of how many people would enroll.) Even now, it’s possible that Foster's estimates were wrong, although he was hardly the only expert who was skeptical. "Probably no one is exactly right," Pollack observed not long ago, writing for Kaiser Health News. "The uncertainties are just too great."
Projections for the rest of the Affordable Care Act have a much firmer foundation. When it comes to the purchase of regular insurance, and how various inducements affect people, we have decades of data – from employers, from states running Medicaid programs, and so on. Plus we have the experience of Massachusetts, which has implemented a very similar scheme for expanding coverage. (The best models include data from Massachusetts, as a matter of fact.)
But if the CLASS Act had a potentially fatal design flaw, shouldn’t we assume the Affordable Care Act has the same one? No – precisely the opposite is true. The sustainability of CLASS would not have been in such question if everybody had to sign up for it. In other words, if long-term care insurance were subject to an individual mandate, old and sick people would not have been the only people enrolling.
Of course, the rest of the Affordable Care Act has such a requirement, as conservatives like Thune know better than anybody. And that raises an interesting question.
We know conservatives don’t like universal health insurance if it means government coverage. We know conservatives don’t like universal health insurance if it means a private coverage with a mandate. And, based on their reaction to CLASS, we know conservatives don’t like universal health insurance if it means a private coverage without a mandate.
But if they don’t like any of those options, what’s left? Could it be that conservatives just don’t like universal health insurance at all? That they simply don't believe it's possible or worthwhile to make sure everybody can pay their medical bills, the way every other developed country does?
It sure seems that way.
Update: I clarified the language in places, moved a few passages around, and added links to Gleckman and Kliff.