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CLASS Dismissed

Oct 31, 2011, Vol. 17, No. 07 • By JAMES C. CAPRETTA
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As the debate on Obamacare reached a crescendo in late 2009 and 2010, no question was more hotly contested than whether the plan would narrow or widen future federal budget deficits. This issue was particularly sensitive among the handful of wavering Democrats from conservative-leaning districts and states. Their constituents were dubious of the budgetary wisdom of the entire Obama-care exercise, but the bill couldn’t pass without their votes. So, to keep them in the fold, the Obama White House and congressional Democratic leaders manufactured a strategy for legislative success: Without changing the substance of Obamacare’s massive entitlement spending, they would do whatever else could be done to create the perception that the bill was fiscally responsible.

imaginary logo for obamacare

On one level, their plan worked. The Congressional Budget Office (CBO) issued a series of cost estimates showing Obamacare would cut the budget deficit modestly over the period from 2010 to 2019. And these estimates, including the final one issued in March 2010, may have been decisive in rounding up the final votes to get the bill through Congress.

But on another level, this strategy failed miserably, because no matter how many times the president repeated the “Obamacare will cut the deficit” talking point, basically no one believed him. And why is that? For starters, it’s simply unbelievable to most Americans that a massive entitlement expansion will lead to less borrowing and pressure on taxpayers. All experience indicates otherwise. It’s also the case that Obamacare’s supposed deficit reduction was based on a series of gimmicks and sham accounting that was exposed well before the final votes were cast. Indeed, one of the most memorable moments in the entire debate was Representative Paul Ryan’s systematic dismantlement of the budgetary arguments being pushed by the president at the White House health care “summit” in February 2010.

Among the canards Ryan exposed that day was the so-called CLASS Act. Now, a year and a half after Obama-care’s passage, the White House has been forced to admit that Ryan and other critics were right all along with regard to CLASS. On October 14, the administration had to kill the program to prevent it from becoming a budgetary disaster in its own right. But that wasn’t what they said about CLASS when Obamacare was under consideration in Congress.

CLASS (for Community Living Assistance Services and Supports) is a voluntary long-term care insurance program that hitched a ride on Obamacare. The program was set up to charge participants premiums for at least five years before they became eligible for benefits​—​meaning that, as the program commenced, there would be several years of premium collection before any meaningful expenditure.

This turned out to be awfully convenient timing for the White House, as it created the perception of a $70 billion, 10-year CLASS surplus that was used to make Obama-care’s overall books look better.

Counting CLASS in the Obamacare totals was an abuse for two reasons. First, as Ryan pointed out, the same dollar can’t be spent twice. But that’s exactly what the White House wanted to do. They said CLASS’s $70 billion surplus could be used both to pay for Obamacare and to liquidate CLASS Act obligations after ten years.

That was bad enough. But the problem was even worse because CLASS itself was a ticking budgetary time bomb, and the administration knew it. Every actuarial analysis done on the program showed it would never last without a massive taxpayer bailout. That’s because it would only attract participants who expected to draw benefits, not those who are generally healthy today. Not only did CLASS create a phony $70 billion surplus in the CBO cost estimate, it also put taxpayers on the hook for a massive bailout down the line.

All of this was well known to the administration, even before Ryan pointed it out to the president. But no matter: The White House and its allies in Congress pressed ahead for Obamacare, with CLASS in tow, because the convenience of the budget trick was simply too tempting to resist.

Unfortunately for the White House, reality can only be ignored for so long. The CLASS provisions required the secretary of health and human services to certify that the program could be sustained only with participant premiums​—​and not even Obama’s HHS could find a way to do that. The administration thus had to pull the plug on the program and expose it as the budget gambit it always was. And just like that, $70 billion in supposed deficit reduction from Obama-care vanished.

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