CLASS is Dismissed

Roger Collier

Posted 10/16/11 on Health Care Reform Update

It happened in the usual Washington way: first, the rumor, then the denial, and then (on a Friday, so as to miss the weekday press), the official admission. The Affordable Care Act’s Community Living Assistance Services and Support program (the CLASS Act) has been abandoned by the Department of Health and Human Services.

CLASS’s demise was foreshadowed several days ago by comments by the program’s departing actuary, but HHS refused to admit it was being scrapped until Secretary Sibelius’s Friday announcement that she had concluded that premiums would be so high that few healthy people would sign up.

CLASS, the brainchild of the late Senator Edward Kennedy, was intended as a specialized long-term care insurance program to provide assistance to those with chronic illnesses or severe disabilities. It would have been financed with premiums paid by workers, through voluntary payroll deductions, with no federal subsidy.

According to Secretary Sebelius, actuarial studies showed that the program would suffer from severe adverse selection, with insufficient numbers of younger, healthier enrollees, leading to a vicious cycle where premiums would have to be set higher and higher to cover the likely costs of benefits.

Not mentioned in Friday’s announcement was the effect of the CLASS abandonment on government health care costs over the 2010-2019 decade. Prior Congressional Budget Office projections of the impact of the ACA showed a net deficit reduction, in part because CLASS funding required front-loading of premium revenues. Scrapping CLASS will eliminate $70 billion in net receipts over the decade, approximately half of the previously estimated ACA deficit reduction effect.

Roger Collier is the former CEO of a large health care consulting practice. Now he writes at Health Care Reform Update.

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