Should Americans be forced into mandatory participation in a government-run long-term care Ponzi scheme? Or is a taxpayer bailout of another congressional misadventure a better idea? These may be the choices confronting a future Congress if the Community Living Assistance Services and Support (CLASS) Program is left intact. CLASS is a new government-run, long-term care entitlement for eligible workers created under Obamacare.
The main concern with existing entitlement programs—Medicare, Medicaid, and Social Security—is that millions of Americans have been promised a benefit that is simply unaffordable to deliver. Instead of truly addressing the pressing entitlement crisis, however, Obamacare created new ones, including CLASS. Most unfortunate is that CLASS was included in the health care legislation not because of demand for such a program but as a budgetary trick to make the new law appear more affordable.
Before CLASS takes effect, Congress should reconsider its merit, especially since government programs almost always cost more than initially projected. This week, Senator Lindsey Graham (R–SC) has introduced a bill to repeal the CLASS Act. This is the second congressional bill concerning CLASS, as Representative Charles Boustany, Jr., (R–LA) has introduced legislation in the House with safeguards in the event CLASS becomes insolvent.
These two pieces of legislation present Congress with an opportunity to re-open the debate over the CLASS Act. Lawmakers should ask themselves: How does current government policy contribute to the problem of individuals relying on others to pay for their long-term care expenses? Are private insurance options really so inadequate that we need a government product? Is the design of the government product sensible?
We already know that the CLASS is seriously flawed: Every actuarial report that has analyzed CLASS has concluded as much. The American Academy of Actuaries has concluded that, given the way the program is structured, “severe adverse selection would result in very high premiums that are likely to be unaffordable for much of the intended population, threatening the viability of the program.”
The main reason is that CLASS is guarantee issue, and premiums cannot vary based on health status. Therefore, the vast majority of individuals who will enroll in CLASS are those who are likely to need long-term care services in the future.
Another key problem is that CLASS premiums will be spent by the government on other programs. Technically, the money will be borrowed from the CLASS trust fund with the purchase of government securities. Therefore, CLASS is not prefunded insurance but a Ponzi scheme that transfers money from current payees to current beneficiaries. Senator Kent Conrad (D–ND), the chairman of the Senate Budget Committee, has referred to CLASS as a Ponzi scheme and “something Bernie Madoff would be proud of.”
It is not difficult to imagine a program of this design tapping into general tax funds in the event of program insolvency. Moreover, to deal with the problem of adverse selection, many liberals advocate that participation in CLASS be made compulsory. So if CLASS is indeed the actuarial nightmare that most experts predict it will be, its continued existence will likely result in a choice between taxpayer bailouts of a long-term insolvent program or required participation of all Americans.
For these reasons, there is bipartisan opposition to CLASS. Six Democratic Senators and Senator Joe Lieberman called for its removal from Obamacare during the congressional debate. Congress should seriously consider pulling the plug on CLASS.