The CLASS Act, the new long-term care program enacted as part of the Affordable Care Act, has been dropped, as the Obama Administration has struggled to implement the program in an actuarially sound manner. Secretary of Health and Human Services Kathleen Sebelius said that, "I do not see a viable path forward for CLASS implementation at this time." The CLASS program would provide long-term care benefits to beneficiaries who paid monthly premiums for at least five years.
It was no secret that the CLASS Act was in trouble. Right from the outset, it seemed that the way the program was structured in ACA would not be viable, since the program was supposed to be self-sufficient. For one, CLASS seemed very susceptible to adverse selection, because it was voluntary and had a relatively short vesting period (five years). The result would be that people would wait until they were sick to enroll. Also, CLASS had been getting lower-than-expected enrollment, which would have forced HHS to increase premiums or reduce benefits, which would further drive away relatively healthy people from the program. In short, without changes, CLASS seemed likely to need general revenue in the future to keep it going.
As we argued back during the health care reform debate, using the revenues from the CLASS Act to fund other elements of the reform package was an egregious gimmick and threatened to leave the program in a dangerously unfunded state. At least that's not a worry anymore.
HHS had spent much of this year trying to adjust the program to make it more actuarially sound, but it had seemed to have given up last month when no appropriations were made for the program in the first CR for FY 2012 and the staff was being transferred from the program's office. Now, the move is official.
Because of its seemingly unsound nature, CLASS had been targeted for significant reform or repeal by some fiscal plans, such as the Fiscal Commission and the Gang of Six. However, because of the vesting period, repeal would actually cost billions of dollars over the next ten years as beneficiaries paid the premiums but only were able to get a few years of benefits at most. In its most recent estimate of ACA back in February, CBO estimated that repealing CLASS would cost $86 billion from 2012-2021. Since the ACA was estimated to save $210 billion over the same period, the "repeal" of CLASS will wipe out some, but not all, of the net savings from the health care reform law (at least as of the most recent estimate).
Hopefully, lawmakers will work to make up for the near-term "savings" that CLASS would have produced with further health reforms. We need many more reforms to our health care programs if we are to control rising health care costs and rising debt.