More on the CLASS Budget "Gimmick"

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JONATHAN COHN OCTOBER 18, 2011

More on the CLASS Budget "Gimmick"

Senator Lindsey Graham needs a math lesson.

On Monday, during an interview on Fox News, Graham commented on the Obama Administration's decision to stop implementation of the CLASS Act:

If we knew then what we know now, that this thing won't work and the $78 billion they counted on to pay for Obama health care wasn't on the table, then you could never say Obama health care was deficit-neutral. 

That's wrong. And since I'm sure this isn't the last time an Obamacare critic will make this claim, let me explain why.

As you probably know by now, CLASS is the initiative within the Affordable Care Act to that will provide long-term care insurance (nursing homes, lengthy rehabilitation, and so on) for the disabled, aged, and very sick. Or, at least, it was supposed to do those things.

According to the official projections, CLASS would have brought money into the federal treasury for the first few years, as people paid started paying premiums. But, later on, it would have spent more than it collected, because it would have to start paying out benefits to the people who had enrolled. The administration, wary of this potential financial burden, on Friday used its discretion to cancel the initiative, at least for now. 

So doesn't that change the cost projections for the Affordable Care Act overall? Sure, but not to the extent that Graham suggests.

When the Affordable Care Act became law, in March of 2010, the Congressional Budget Office estimated that CLASS would bring in $70 billion, on its own, over the first ten years. That $70 billion is now gone, just as Lindsey suggests. But the CBO estimated that the health care law, as a whole, would reduce the deficit even without that $70 billion from CLASS.

Specifically, it estimated that the Affordable Care Act would reduce deficits by $124 billion total. Take away that $70 billion and you still have $54 billion in net budgetary savings. And I'm not even including an additional $18 billion in savings the law will generate by reforming the student loan program.

Obamacare's savings look even bigger today. In its February 2011 update, the CBO projected that the Affordable Care Act as a whole would reduce deficits in the coming decade by $210 billion, of which only $86 billion were to come from CLASS. Or, to put it more simply, those projections suggest the Affordable Care Act will reduce deficits by $124 billion between 2012 and 2021, even without CLASS.

You can see that in the graph above, which breaks down Obamacare's budgetary impact, year by year, with and without CLASS. I'm not 100 percent on the figures -- I'm double-checking to make sure I haven't mismatched categories and years -- but the basic gist is right. (Year one is 2012, etc.)

Now, even $124 billion is not that much money, at least over the span of a decade. But did you notice that the estimates of deficit reduction are getting bigger? That's because projections suggest the health care law will save more money in the long term than it does in the short term. And this is very much by design.

Remember, the big burst in spending under the Affordable Care Act takes place in 2014, when the government expands eligibility for Medicaid and makes subsidies available to lower- and middle-income people buying private insurance. You can see that burst in the graph: It's where the peak, where the law is adding to the deficit rather than subtracting from it.

By contrast, he reforms designed to make health care less expensive -- all of those changes in the way Medicare pays for services, the tax on high-end insurance benefits, and so on -- start out small but get bigger over time. That's why, once the burst is over, the law continues to reduce the deficit.

Many conservatives think the CBO is too optimistic about the eventual impact of those payment reforms. And that's a fair argument, although many liberals think CBO isn't optimistic enough. But if we're going to go by the official projections -- and, really, that's the best guide we have right now -- then Obamacare will reduce the deficit, even now that the CLASS Act is gone. 

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posted in: jonathan cohn, politics, lindsey graham

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