Another time bomb in health care reform

Health reform is many things, but not a class act. The reason: the CLASS Act.

The health legislation signed into law last week by President Obama includes a provision called the CLASS Act, which provides long-term care at home. Few people know about it, but experts agree that it could well explode the federal budget deficit down the road.

The Community Living Services and Support (CLASS) Act was designed to assist people who need help with basic daily tasks and are willing to pay for in-home assistance. The plan, which was long championed by the late Sen. Edward M. Kennedy, would, in effect, enable elderly and disabled people to stay out of nursing homes.

All laudable goals.

The problem: The insurance plan, as currently constructed, can't possibly pay for itself over the long run and will blow a hole in the federal budget unless lawmakers somehow become more diligent than we generally expect them to be.

North Dakota Sen. Kent Conrad, chairman of the Senate Budget Committee, has called the measure a Ponzi scheme. He and other moderate Democrats wrote a letter last year expressing their concerns about the long-term fiscal soundness of the proposal.

Ace reporter Jennifer Haberkorn of The Washington Times wrote an excellent front-page article about the dangers of the CLASS Act in November. But no one paid much attention.

Ms. Haberkorn explained that the program would collect monthly premiums from all working Americans unless they opted out of the plan. People who stayed in it for five years would be eligible for federal subsidies that would help them purchase in-home care when they could no longer eat, shower or dress themselves.

The arrangement would work just fine for a while. In fact, initially, the program will take in tens of billions of dollars that will defray the overall cost of health reform. The CLASS Act is one reason reform looks so fiscally responsible in the short and medium terms.

But eventually the worm will turn. By the end of the decade, government and private estimates point out, the CLASS Act will take in billions of dollars less than the monthly premiums can cover and could, in fact, be insolvent by 2021.

Congress and executive branch officials will have to start jacking up the monthly payments fast and furiously if they expect the program to stay even. As we have seen too many times in the past, those kinds of sharp increases are often avoided by risk-averse politicians.

The likely outcome: an extra dollop of deficit spending, and we already have too much of that.

Longtime economic journalist Howard Gleckman wrote for the nonpartisan Tax Policy Center last year that the accounting for the CLASS Act was "both dangerous and dishonest."

"What some Democrats see as a short-term windfall threatens to become a long-term drain on the Treasury," he wrote.

The new law demands that the program must be judged as solvent for 75 years. That would be a lovely thing. But the higher the premiums are boosted, the fewer people who will participate in the program. And that means - if history is guide - that Congresses in the future will shovel out more borrowed money to save the program, which by then will be a much-loved entitlement.

The CLASS Act is just one of many budgetary tricks that will keep health reform fiscally afloat in the early years. Republicans complain that many of the reform's supposed savings are smoke and mirrors and that its widely advertised deficit cuts are really deficit increases.

Rep. Paul D. Ryan of Wisconsin, the ranking Republican on the House Budget Committee, estimates that health reform actually will widen the deficit by $662 billion over 10 years when the gimmicks and hidden costs are calculated correctly.

Among the sleights of hand, he says, are the provisions to allow physicians to avoid cutbacks in their Medicare reimbursements ($208 billion) and $71 billion needed to implement the entire health care effort, which includes $10 billion to hire 16,000 IRS agents.

Democrats reject those accusations. They also insist that the CLASS Act will be kept in the black by diligent lawmakers and bureaucrats in the years to come.

In addition, the Congressional Budget Office and other well-regarded estimators of federal budgets have a tradition of overestimating the cost of new initiatives and underestimating revenue collections. Health reform could well turn out to be a lot more economically prudent than the naysayers claim.

But don't bet the ranch. The CLASS Act is one of many time bombs planted in health care reform that are sure to go off, sooner or later.

A good bet, in fact, is sooner.

Jeffrey Birnbaum is a Washington Times columnist, a Fox News contributor and president of BGR Public Relations. His company represents health care firms.
http://www.washingtontimes.com/news/2010/mar/26/the-not-so-class-act/print/