White House kills CLASS

Late Friday afternoon is the golden hour for making announcements that you hope won’t get much attention. The news coming out of the Department of Health and Human Services right now is no exception: The Obama administration has halted work on health reform’s Community Living Assistance Services and Support, or CLASS, Act after finding it too difficult to implement.

The action stands to reduce expected revenues from the health reform law by $86 billion, as well as raise questions about why the provision was included in the health reform law to begin with.
(M. Spencer Green - AP)

There has always been concern about the CLASS program’s long-term stability. The long-term insurance program relies on voluntary enrollment. If only a small group of unhealthy people — those who anticipate using the services — sign up, the program could quickly destabilize.

An actuarial review that Health and Human Services has just released confirms those fears: The administration could not design a long-term care program that would both hew to the health reform law -- which requires that CLASS beneficiaries receive a minimum of $50 in benefits per day -- and make the program actuarially sound.

“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,” says 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.”

Friday’s announcement wasn’t exactly unexpected, as numerous signs over the past few months have spelled trouble for the program. The CLASS Act’s chief actuary, Bob Yee, left the office last month as part of a larger reduction in staff. In ongoing budget negotiations, the Senate has not appropriated any funding for the act’s implementation.

What’s most damaging about the decision are the larger implications for the health reform law. The pullout is expected to reduce the projected budget savings of the Affordable Care Act -- when the Office of Budget Management issues the president’s 2013 budget -- by approximately $86 billion. The health reform law will still generate $127 billion in revenue, administration officials say, but that’s a big notch down from the original estimates.

The decision also raises questions about the methodology used to supports the health reform law. Sherry Glied, HHS’ Assistant Secretary for Planning and Evaluation, said one of the reasons that the issues with the CLASS Act came up only after the law’s passage is that some “quite thin” analysis went into the provision in the first place.

“One of the things we discovered, after the law passed, the [original actuarial basis] was quite thin,” she said. “CLASS was quite different from other long-term insurance programs. Now, we have a much broader understanding of how the long-term care market works.”

Greenlee adds that this shouldn’t prompt concerns about other parts of the health reform law since the CLASS Act always faced more scrutiny than other health reform measures.

“There’s a big difference between this area that’s had uncertainty and the rest of the law,” she said.

For opponents of the health reform law, that’s going to be a tough sell.