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What the CLASS Act says about health-care reform

By Ezra Klein,

Back in January, I published an “omnibus” look at the various criticisms conservatives were lobbing at the Congressional Budget Office’s score of the health-reform law. Only one, I concluded, had real merit: the case against the CLASS Act.

Toby Melville

Reuters

“CLASS” stands — or stood — for “Community Living Assistance Services and Supports.” The idea was simple, or seemed to be: a voluntary insurance program that would cover home health-care options for adults who become disabled. It was Sen. Ted Kennedy’s brainchild, but the White House was cool to it in public and hostile in private. “Seems like a recipe for disaster to me,” wrote one aide in a subsequently released e-mail.

The problem with CLASS was well understood. It frontloaded its savings and backloaded its costs. As the Congressional Budget Office wrote (pdf), “the cash flows under the new program would generate budgetary savings (that is, a reduction in net federal outlays) for the 2010-2019 period and for the 10 years following 2019, followed by budgetary costs (an increase in net federal outlays) in subsequent decades.” No mystery there.

The surprise was that it made it into the bill. As my colleague Sarah Kliff reported, it was less a legislative coup than an unintended consequence.

Sen. Chris Dodd was chairing the Health, Education, Labor and Pensions Committee in Kennedy’s absence, and he didn’t think he had enough Democratic support to hold the line on CLASS. Sen. Judd Gregg, a Republican, proposed to weaken the program by replacing its premium with instructions for the Secretary of Health and Human Services to develop an “actuarially-sound premium” at a later date. Much to Gregg’s surprise — much to everyone’s surprise — Dodd accepted the amendment. Gregg’s attempt to underscore the financial weakness of the program led to its inclusion in the bill. After that point, removing it would have required 60 votes and a willingness to effectively betray Kennedy. CLASS was in.

Now it’s out. And the reason, again, was Gregg’s proposal. The mandate to develop an “actuarially-sound premium” gave the Obama administration a lever with which they could remove CLASS from the final bill. On Friday, the Department of Health and Human Services announced it was killing the program.

“We have been looking at twin objectives, achieving actuarial soundness over a 75-year period, as well as being legally solvent, supported by the law,” explained Kathy Greenlee, assistant secretary on aging at HHS. “We found some tension between those two objectives. The things we could do to achieve actuarial soundness take us too far from the law.”

One way of looking at the administration’s decision is that it shows their commitment to fiscal responsibility. “What happened here is that government worked exactly the way it ought to,” wrote Kevin Drum at Mother Jones. “Even though it was a liberal program promoted by a longtime liberal icon, HHS analysts eventually concluded that its conservative critics were right and the program as passed was flawed. So they killed it.”

At the Atlantic, Megan McArdle says the truth is just the opposite. “The problems with CLASS were known from day one, but no one listened, because it gave them good numbers to sell their program politically.” The experience with the CLASS Act, she says, just goes to show how much of the bill is likely to prove flawed in practice.

Both sides have a point. The Obama administration did the right thing here, and they did it at high political cost. Killing the CLASS Act was always going to open them to a flood of criticism. They could have fudged the numbers. They could have tried to delay the inevitable. They didn’t. Instead, they proved themselves committed to a financially sound health-reform plan.

That said, the Obama administration didn’t write the bill in a hermetically sealed chamber. It was a rough and angry political process. Hundreds of legislators and thousands of staffers had a say in the law’s construction. The GOP’s lockstep opposition to the effort and promiscuous use of the filibuster forced the process to an abbreviated and desperate end. And even if the process had been perfect, it’s a big law attempting to do many things. There will undoubtedly be policies that disappoint or go awry. There will also be provisions that prove unexpectedly potent and popular in practice. The future of our health-care system — not to mention our budget — depends on our ability to ruthlessly reform our reforms as we learn what works and what doesn’t.

The Obama administration has now proven its willingness to cull the law’s failures. But the CLASS Act’s construction made this a rare moment when they could act alone. They’ll need congressional cooperation to modify much of the rest of the bill. And if Republicans decide they would prefer to see the legislation fail than to pitch in to make it work, then so long as they have enough votes to mount filibusters in the Senate, they can make CLASS the last mistake the White House is able to correct.

But the CLASS experience should, if anything, make us more confident in the underlying law. As I mentioned earlier, the problem with CLASS isn’t that it unexpectedly failed in practice. It’s that further analysis showed it worked exactly as the Congressional Budget Office predicted: it saved money in the first 10 years and cost money after that.

In other words, the motto here is “trust CBO.” And what does CBO say about the rest of the health-care law? They predict (pdf) that it saves some money in the first 10 years, and much more in the decades after that. The removal of CLASS means the savings in the first 10 years will be somewhat smaller and the savings in the subsequent decades somewhat larger. But their underlying quality of the analysis is unchanged, and, if anything, strengthened.

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