More on the Obamacare Announcement Dumped on a Friday Afternoon....

The Editors October 14, 2011 8:00 P.M.

First CLASS, What Next?

In a Friday bad-news dump that was a whopper even by its own standards, the Obama administration added to the announcement of a near-record annual deficit and an escalation of undeclared war in Uganda the news that the CLASS Act, an ill-conceived adjunct of the Affordable Care Act, is no more. The upshot is this: Obamacare just got a whole lot more expensive than advertised, and there is reason to believe that its Democratic architects have long known this would happen.

The Community Living Assistance Services and Support Act was the brainchild of the late senator Edward Kennedy of Massachusetts, and it was supposed to be a kind of Social Security that provided long-term care for the elderly. It figured heavily into the Democrats’ dubious accounting of the cost of the Affordable Care Act, and at the time of passage was expected to account for $70 billion out of a total $143 billion in “deficit reduction” claimed in the bill.

But that number was a lie twice over. The revenue created by CLASS—more recently projected to be not $70, but $86 billion, as the CBO’s ten-year budget window has moved forward since passage—comes in the form of insurance premiums paid to the government, which eventually would have been disbursed to cover care, not reduce the deficit. Yet Democrats designed CLASS to collect premiums for five years before paying out benefits, which made it look like it was running surpluses within the CBO’s ten-year budget window.

That would have been bad enough, but it gets worse. You see, the CLASS model was unworkable from the word “go,” coming as it did with all the features you’d expect to see in a health-care “death spiral.” The program was voluntary, meaning that those more likely to require its benefits would be more likely to enroll, and the healthier individuals required to offset the actuarial risk would stay away. This adverse-selection problem would mean higher premiums, and higher premiums would mean more adverse selection. As a result, CLASS was projected—by the government’s own chief Medicare and Medicaid actuary—to begin paying out more in benefits than it took in in premiums just ten years after it got off the ground.

This was not a secret. To anybody who had bothered to do the math, it was a simple reality. But reality is not the strong suit of the Obama administration, and so it has spent the last year and a half charging the Department of Health and Human Services with the impossible: figuring out a way to make CLASS actuarially sound over a 75-year horizon while maintaining the minimum benefits of the program prescribed by law. When HHS downsized CLASS’s chief actuary last month, we might have had a hunch as to how this exercise had turned out. But it wasn’t until today that HHS Secretary Kathleen Sebelius made it official, telling Congress in a letter that “despite our best analytical efforts,” no implement was found that could cut the Gordian Knot. As Sebelius’s deputy Kathy Greenlee (under)stated it: “We found some tension between those two objectives. The things we could do to achieve actuarial soundness take us too far from the law.”

In other words, the United States Congress passed, and the president of the United States signed, a piece of politically convenient legislation that was essentially—that is, mathematically, logically—unworkable, and were either too foolish to realize it, or too cynical to care.

But even as we marvel at the perfidy of our leaders, conservatives have something to cheer in this failure. This is the first major component of Obamacare to collapse under its own weight, but by no means is it likely to be the last. The law is replete with nonsensical economic assumptions and shameless gimmicks. Democrats may have hoped these would not start to become clear until after the 2012 election, but we now already have a good idea of what the world will look like under Obamacare: waivers for the politically connected, rising premiums for the rest of us, and massive spending programs that can’t survive their own assumptions. The fact that much — even all — of this was was predicted by conservative opponents of the law should give its supporters cause to look back at what else was portended. Be sure that there is more to come, with far more harmful consequences, unless the bill is repealed.