And so it begins. On Friday, the plug was pulled on a major Obamacare program. The CLASS Act was a new federal long-term care insurance program set to begin in less than 90 days. It was spiked for a simple reason: It was yet another government program that would break the bank.
The CLASS Act was one of the least known but most dangerous provisions of the health reform law. Despite its noble aim — to help keep elderly people out of long-term care facilities — it would have come at an enormous cost to workers, the private market for long-term care insurance, and taxpayers.
For many workers, the program would have restricted choice and been prohibitively expensive, particularly in today’s economy. According a report by the Centers for Medicare and Medicaid Services (CMS), unless workers’ employers opted out of the program, the federal government would have withheld up to $240 a month from their paychecks to pay for their participation in it.
Workers wouldn’t have had much choice in the matter. They would have been automatically enrolled, and the federal government would have deducted more than $2,800 a year from their paychecks. Before receiving any benefits, people would have needed to have paid into the program for five full years.
The program would likely have put many private long-term care insurers out of business. It would have competed with private insurers, but with all the perks that federal ownership gives, such as being exempt from regulations put on private long-term care insurers.
Moreover, the program would have busted the federal government’s budget. As with Social Security, Medicare, and Medicaid, the long-term sustainability of the program was a fantasy from the beginning. To be sure, collecting five years’ worth of premiums before paying a single benefit would have resulted in an initial surplus. But after that, according to CMS, the program would have quickly devolved into an “insurance death spiral,” where the vast majority of participants would consume far more resources than they contributed. Sound familiar?
Low-income Americans would have paid as little as $5 per month, but according to the Congressional Budget Office, the benefit could have averaged more than $27,000 a year.
It was this kind of financial model that led Democratic Sen. Kent Conrad of North Dakota to call the CLASS Act “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of.”
Less than a year ago, even the president’s own Deficit Commission described the CLASS Act as “unsustainable” and called for it to be fundamentally reformed or outright repealed.
But even with the CLASS Act’s repeal, Obamacare will bust budgets. McKinsey & Co. estimates that 30 percent of businesses will drop employee health insurance as a result of Obamacare. This shift will be “vastly more than expected,” meaning that millions of American workers will no longer get private insurance but will instead get government-sponsored coverage through a subsidy. Some estimate that this will add as much as $1 trillion to Obamacare’s cost.
America dodged a bullet with the CLASS Act. Let’s hope that we can dodge the rest of Obamacare’s bullets. If we don’t, we’ll have a diagnosis of higher healthcare costs, limited access and more debt. That’s a terminal condition for American healthcare as we know it.
David Merritt is the former Chief Executive Officer at the Center for Health Transformation and the Gingrich Group.
Correction: An earlier version of this article implied that the McKinsey & Co. study only concerned the CLASS Act. In fact, it concerned the entire Patient Protection and Affordable Care Act (Obamacare).