Home > Employee Benefits > More fuzzy math in Health Care Reform, death of the CLASS ACT

More fuzzy math in Health Care Reform, death of the CLASS ACT

Last Friday evening, HHS Secretary Kathleen Sebelius quietly closed the door on a key revenue component of Obamacare. The CLASS Act, a federally run long term care program that was set to launch next year and tasked with generating $80 billion in revenue over the next 10 years was cancelled. Sebelius in a press release finally openly questioned the programs ability to attract members and generate revenue for the federal government, an argument that opponents of the bill have been making since the concept was introduced.

The revenue claims attached to the CLASS Act have been highly controversial for several key reasons. Even if the wildly optimistic enrollment estimates were accurate, this program was a federally sponsored ponzi scheme in the making, as I have argued in past blogs. The Congressional Budget office is only authorized to project costs and revenue out 10 years and the CLASS Act was designed under Obamacare to be open for enrollment in year 4 of HCR, but would not pay any benefit for 5 years after enrollment. So 9 years in, without having to pay out a dime, backers of health reform were able to use an $80 billion dollar revenue projection to argue that HCR would pay for itself. This sleight of hand accounting was frustrating for those that were paying attention.

A second key “mistake” was the government’s wildly optimistic enrollment projections for the program. Sebelius admitted in her Friday night comments that she just couldn’t see how young healthy people were going to enroll in a program that was estimated to be priced pretty high as an optional benefit targeted primarily to the needs of the elderly. For those of us in the industry who have been selling long term care plans for many years, know how difficult it is to attract any employees, never mind young healthy employees to a LTC voluntary plan. Having spent over 20 years selling and consulting on corporate benefit plans, I tried to explain this in several meetings on Capitol Hill during the HCR debates, but proponents of the plan seemed disinterested in the advice of industry experts.

With an $80 billion hole in the HCR projections on this one failed component alone, I remain concerned with the impact other key programs will have on state and federal deficits when key pieces roll out starting in 2014.

Visit WGA’s Health Reform Advisory Corner for more updates.

About the Author

Christopher Nadeau is a Principal at William Gallagher Associates (WGA) and head of the Employee Benefits Group. Mr. Nadeau counsels his department to develop and redesign employee benefits programs to match the corporate philosophy, long-term needs and objectives of their clients. He is also an industry leader on Healthcare reform and the cost impact and administrative burden on employers.

617.646.0351 | CNadeau@wgains.com | Follow Chris @Chris_Nadeau

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