Administration Ignored Warnings on Long-Term Care Plan

Great post by Megan McArdle.

"Speaking of ill-considered financial decisions made by politicians intent on their policy priorities, new emails revealed by the AP show that the administration was warned that parts of ObamaCare were a financial disaster--but plowed ahead anyway.

For those who don't marinate daily in the minutiae of health care policy, a recap: when ObamaCare was working its way through the Congressional sausage factory, they wanted absolutely every penny of revenue that they could get, in order to maximize the amount of deficit reduction they could claim. The call thus went out to the committees to dust off all of their old revenue raisers and present them for possible inclusion in the bill.

As I understand it, that's how we got the idiotic 1099 requirement, which raised a trivial amount of revenue by requiring every business in America to do massive new loads of paperwork. It also seems to be how we got the CLASS Act, a long-term care insurance program that I believe was the brain-child of Ted Kennedy. While the idea was beloved of nursing homes, it was hated by everyone else due to its rich potential for turning into yet another unkillable and unaffordable entitlement.

However, from the point of view of someone who is primarily concerned with the Congressional Budget Office's 10-year scoring window, it was great. In the first decade of its existence, the program collects a lot of premiums, but doesn't pay a lot of benefits, so it looks like a fiscal gold mine. It's only in later years, when the beneficiaries start demanding their long-term care, that the problems begin.

It seems like it might have been wiser to skip it. But if they had, ObamaCare wouldn't have had much deficit reduction; the last score of CLASS that I'm aware of put the net deficit reduction at $72 billion. CBO's final score of ObamaCare said it would reduce the deficit by $118 billion over the same period. Without CLASS, the deficit reduction would have been less than half the figure they eventually touted. Somehow, $46 billion of deficit reduction on a nearly $1 trillion bill doesn't sound too impressive, does it? More like a rounding error than a serious commitment to fiscal probity.

No wonder they were so deaf to the warnings from their own experts. Apparently, the administration was warned about this from the very beginning, but ignored it:

Obama's own bipartisan debt commission last year recommended major reforms or repeal of CLASS, as did another independent advisory group. Nursing homes and long-term care providers support the program, while private long-term care insurance companies oppose it. CLASS poses a dilemma for the new congressional supercommittee, since it initially reduces the federal deficit until payouts overwhelm premiums collected.

The emails show that the first warning about CLASS came in May 2009, from Richard Foster, head of long range economic forecasts for Medicare. "At first glance this proposal doesn't look workable," Foster wrote in an email to other HHS officials, some of whom were working with Congress to get CLASS into the health care law.

Foster said a rough outline of the program would have to enroll more than 230 million people - more than the U.S. workforce - to be financially feasible.

But work on CLASS continued, bolstered by a report for AARP that laid out scenarios for implementing the plan. The AARP study also raised financial concerns, although the seniors' lobby supports CLASS.

In July, Foster tried again. After reviewing the latest information from Kennedy's office, he wrote HHS officials: "Thirty-six years of (professional) experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue."

Too late. The Obama administration had decided to support CLASS. Documents and emails indicate that Foster was edged out of deliberations. Officials relied on a more favorable analysis from the Congressional Budget Office. In November, Foster went public with his concerns. Congress was well aware, the administration says.

By that time, Marton, the HHS aging policy official, was also raising questions internally. Emails he sent other administration officials relayed studies that raised concerns about such issues as premiums and the role of employers, while also recommending fixes.

Publicly, the administration maintained it would all work out. A December 2009 presentation for senior officials stressed the end result would be a financially robust program.

In private, administration insiders were still spelling out concerns. In January 2010, amid the final drive to pass the health care law through a divided Congress, officials circulated a 10-page list of "technical corrections." One item questioned whether the law gave HHS sufficient authority to redesign the program to keep it afloat, and recommended a "failsafe" clause spelling that out.

The administration seems to think that it can fix the program--but the only workable fix appears to be making the thing mandatory rather than optional, which is hardly what they said when they were passing it. And it's not even clear that making it mandatory would work, as my husband noted last spring.

The administration has taken something of a beating this week. Not because they're somehow uniquely evil--but because they presented themselves as something different, a technocratic elite above the grubby political posturing and ideological mistakes of earlier administrations. First Solyndra, now this, seem to show that they're very much like everyone else when they're caught up in the throes of ideological excitement--too much in a hurry to dig into promises that are, as journalists like to say, "Too Good to Check".