Reality Takes Down The CLASS Act

If you missed the weekend news that the Obama administration has killed a significant piece of its own health care reform, don’t blame yourself. This inconvenient bit of truth was deliberately buried.

Releasing unwelcome news late on a Friday afternoon is a Washington tactic that has been around a lot longer than I have. The idea is to see that a story lands in Saturday newspapers, which few people read, preferably deep in the inside pages. This strategy worked better before so many of us started getting our news via the Internet, but it is still favoured by politicians and bureaucrats who would rather keep a story off camera and out of the Rose Garden.

So it was no accident that late on Friday, the Department of Health and Human Services issued a 48-page report acknowledging that the department could not find a way to make the health care reform’s voluntary long-term-care insurance program work. The program relied on widespread participation by younger citizens whose premiums would fund benefits for an older, sicker population that requires assistance with daily living activities rather than treatment for acute medical issues.

But, as critics of the plan (and of LTC insurance generally) warned all along, setting those premiums low enough to attract young workers would not generate enough money to pay for the benefits those workers would eventually seek. Setting adequately high premiums would discourage younger workers from participating at all. Either way, the program, known as the Community Living Assistance Services and Support Act, or CLASS, would be prone to eventual financial collapse without a federal bailout, which the health care reform legislation prohibited.

The report did not forthrightly say that the program was being abandoned. The HHS press office, which found time to issue releases last week on World Arthritis Day and the National Health Service Corps, must have closed early to beat Friday’s rush hour traffic on the Beltway. The agency’s home page and press pages had nothing to say over the weekend about the decision to abandon a program that was billed as a vital public service and as a tribute to the late Sen. Edward Kennedy, the Massachusetts Democrat who championed it.

But in a deliberately low-key way, top officials put out the word that CLASS is, in fact, dead. “We have not identified a way to make Class work at this time,” HHS Secretary Kathleen Sebelius told The New York Times.

I spotted the Times story on my Yahoo! News feed just before I went to bed on Friday. On Saturday morning, I was gobsmacked when I picked up the pulp and ink version of the paper, scanned the front page, and found nothing about the health care reform law that has dominated our political discourse for over two years.

The top story in Saturday’s New York edition of The Times was on the fear that Egypt’s military may cling to power rather than promote democracy. Big chunks of page-one real estate were devoted to the hundreds of protesters (in a metropolitan area of 15 million) still occupying a privately owned park in the general vicinity of Wall Street; to a Texas lobbyist who is a longtime ally of Gov. Rick Perry; and to how natural gas development is bringing economic opportunities to a “charmed circle of local winners” consisting of waitresses, innkeepers, pipeline workers, launderers and professionals in a long-depressed area of rural Pennsylvania.

News that HHS is abandoning the CLASS Act was relegated to page A10. News judgment is a subjective thing, but I have no idea what the newspaper’s editors were thinking. Maybe they presumed their American readers were more concerned with the latest political news from Cairo than with a program that was supposed to save their own federal government $86 billion over the next 10 years.

Oh, about that $86 billion – that’s another oddity in the weekend story by the self-proclaimed newspaper of record. Saturday’s story said nothing at all about the curious accounting for CLASS. The program was supposed to be a major element of financing the health care overhaul, because of the simple expedient that it was supposed to collect premiums for at least five years before even beginning to pay benefits. In the funhouse-mirror world of legislative scorekeeping, this counted as an $86 billion reduction in the federal budget deficit, even if the program would have ended up going broke.

The Associated Press, The Washington Post and other news outlets managed to include that aspect of the CLASS saga in their coverage of the HHS action. The Times didn’t. Details can get missed when big stories break right on deadline. The people who are careful to release bad news late on Fridays are well aware of this.

CLASS fell victim to an economic reality that threatens the entire health care overhaul: Insurance is a spreading of risk, and you can’t “insure” against an event that nearly everyone faces. It’s not expensive to insure the life of a 30-year-old, because 30-year-olds seldom die. But it is impossible to “insure” someone against death altogether, because we all die eventually. This is why premiums are low for term life insurance that covers a young adult, while premiums are high for whole life insurance, which is designed to stay in force indefinitely, for that same young adult. Insurance companies use the extra money in whole life premiums to establish reserves, so that on average, a benefit on an insured person merely represents the return of premiums paid over the years, plus interest. Whole life insurance is really a savings account coupled with insurance protection for the few who die young.

Everyone gets sick at some point, but not everyone needs extremely expensive treatments, especially when young, so health insurance for major expenses can theoretically be affordable. But health insurance for routine checkups and vaccinations is not insurance at all; it is merely a payment mechanism.

Likewise, most people will need some form of personal non-medical care when they get very old. You can’t insure against this need; you can only save for it. But if people don’t have the cash to save, either directly or in LTC premiums, they won’t.

The only way to make health care or long term care more affordable in the long run is to bring down the actual costs of providing those services. Last year’s health reform did very little on either front. It just changed the way we pay for things.

CLASS failed to get off the launch pad because the law required that it be self-sustaining. The rest of the health care reform is no more grounded in economic reality than CLASS was, but it does not have the same mandate to pay for itself. As a result, we are going to be talking about providing and paying for health care for years.

If you want to stay on top of developments, keep an eye out for more news from Washington. Stay on your toes on Friday afternoons.

For more articles on financial, business, and other topics, view the Palisades Hudson newsletter, Sentinel, or subscribe to my daily opinion column, Current Commentary.

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