CLASS Program demonstrates dishonesty of Health Care Reform Bills
This little known program included in both bills stands for Community Living Assistance Services and Supports (CLASS) Act , which would create a national insurance trust, which would provide a modest cash benefit to seniors and persons with disability.
This recieved a pass from the CBO, which is referred to as non partisan, even though the head of this agency is chosen by the respective leaders of each house of Congress. Under Republican control it dramatically underestimated the cost of the Medicare Drug program, which facilitated its passage.
In contrast, the Actuarial Department of Medicare is truly non partisan, with the director appointed by the president, the current occupant, Richard Foster, by President Clinton, but is not subject to reappointment with each administration.
Let’s look at how each of these agencies viewed this bill which I excerpt from this essay on the Actuarial Report. A previous version of this essay was sent to Rick Foster, who thanked me for publicizing it.
Two federal agencies with different dedications to precision, CMS and and CBO
The Actuarial Department of the CMS performs some of the same functions as another more well known agency, The Congressional Budget Office, CBO. It is useful to compare how these two agencies reported on a component of the House Bill, a federally sponsored long term disability program called CLASS.
First the CBO from it’s analysis of HR-3962 (pg 13):
As noted earlier, the CLASS program included in the bill would generate net receipts for the government in the initial years when total premiums would exceed total benefit, but it would eventually lead to net outlays when benefits exceed premiums. As a result, the program would reduce deficits by $72 billion during the 10-year budget window and would reduce it a smaller amount in the ensuing decade….In the decade following 2029, the CLASS program would begin to increase budget deficits. However the magnitude of the increase would be fairly small compared with the effects of the bill’s other provisions, so the CLASS program does not substantially alter CBO’s assessment of the longer term effects of the legislation.
Compare this with the actuarial report from CMS
In general, voluntary, unsubsidized, and non-underwritten insurance programs such as CLASS face a significant risk of failure as a result of adverse selection by participants. Individuals with health problems wold be more likely to participate than those in better than average health…..a classic "assessment spiral" or "insurance death spiral" ……there is significant risk that the problem of adverse selection would make the CLASS program unsustainable.
The CBO ignores the fact that this program is required to stand alone, precluded from being subsidized by federal funds. In this way it is similar to the same requirement of the "public option" for general health insurance. Yet, the CBO scores the revenue from premiums that should be treated as reserves as reducing the deficit, and then dismisses the anticipated cost when payments to subscribers will be due as "fairly small compared with the effects of the bill’s other provisions." This enables them to ignore the ultimate actuarial inconsistency, and the specific requirement in the bill that this title be evaluated independently.
In contrast the CMS actuarial report describes the program for what it is, "a classic insurance death spiral" open to "adverse selection" that would make the CLASS program unsustainable without breaching the stricture of the program standing on its own. Also not mentioned by either agency, is that because this will require future support, a bailout if you will, the premiums will be cheaper than those of the private insurance industry that are required to adhere to standard accounting principles. This will increase the expected growth of this program, along with the scale of the bailout when the time comes for it.
This program is illustrative of how this bill is being passed not only by misrepresentation, but simply by the obfuscation of the massiveness of the legislation. If there has been any serious discussion in the media of the defects of this program described herein, I have yet to find it.