A new report issued by the Department of Health and Human Services has recommended against implementing a troubled long-term benefit program that was a part of President Obama’s national health care law, warning that it was effectively unworkable.
This is another step in the likely demise of the embattled Community Living Assistance and Support Services Act, which was a brianchild of the late Sen. Ted Kennedy.
“I do not see a path to move forward with CLASS at this time,” wrote the program’s Administrator, Kathy Greenlee, in a letter to HHS Secretary Kathleen Sebelius.
The design of the CLASS Act is similar to Social Security in that people contribute money to pay for current beneficiaries in the expectation they’ll receive benefits when they need them. Yet from an actuarial standpoint, the CLASS Act is different, because participation is voluntary, and benefits are intended to be financed exclusively through premiums, rather than a separate stream of tax revenue. Numerous actuarial studies have concluded that there wouldn’t be enough participants paying out premiums to cover ongoing benefits, thus the program would be unsustainable as envisioned.
Last month, Congressional Republicans issued a report detailing how the Obama administration ignored warnings that the program was unsustainable in the rush to pass the national health care law. Shortly after this, the program’s actuary announced he was leaving and said the office dealing with the program was to be shut down. HHS later issued a statement insisting the office hadn’t been closed, while acknowledging that it had been downsized and that whether the program gets implemented remains an “open question.”
One reason why the Obama administration has been reluctant to officially shut down the program is that it was one of the main accounting gimmicks they used during the health care debate. Because the CLASS Act was supposed to collect five years of premiums before paying out any benefits, the Democrats have been claim $80 billion in short-term surplus from the program as deficit reduction, ignoring the obvious fact that the money would eventually have to pay for benefits. It’s been called a “budget zombie.”
Here’s the detailed HHS report prepared concluding that the CLASS program couldn’t work. One of the fears raised is that if it were implemented and failed, it would be problematic to shut down.
“(W)e conclude that there is substantial uncertainty about what would follow if solvency or legal problems prevented the CLASS program, once operational, from continuing to implement the plan,” the report reads. “We cannot with any confidence predict that the CLASS program would beable to honor its commitments to individuals who had already enrolled or entered beneficiarystatus in the program, or avoid leaving them worse off, or that such individuals would be able torecoup their paid premiums.”
