President Obama's Department of Health and Human Services has confirmed that it has downsized the office set up to implement the controversial CLASS Act program created by the national health care law, but denies that it has shut down the office entirely.
"While the staff of the CLASS office has been reduced, reports that the CLASS office is closing are not accurate," HHS said in a statement, as reported by Sarah Kliff at the Washington Post. "We are continuing our analysis of this program. As we have said in the past, it is an open question whether the program will be implemented. A CLASS program will only be implemented if it is fiscally solvent, self-sustaining, and consistent with the statute."
In an approprations bill passed last night, Senate Democrats slashed funding for the office to zero for fiscal year 2012. A source familiar with the matter tells me that HHS had informed the Senate appropriators it wouldn't need funding for the office for the coming year because it needed more time to get things up and running. This suggests that the funding cut was the result of HHS's decision to at least delay the implementation, rather than pressure being put on HHS by Senate Democrats.
In an email sent out this morning, David Yee, who was named as actuary of the program, sent out an email reading, "I'm leaving my position as the CLASS Office actuary as HHS has decided to close down the CLASS Office effective tomorrow."
Yee later told the National Journal's Meghan McCarthy, “I don’t think that’s the official line. But that’s my interpretation. All of the people are being reassigned.”
The CLASS Act, a long-term care program created by the late Sen. Ted Kennedy, was controversial from the get go. Earlier this month, a GOP report prepared by both cambers of Congress, disclosed emails showing that in the rush to pass the health care law, the administration ignored repeated warnings that the program, which was to collect premiums in exchange for long-term care benefits, was financially unsound.
The design of the long-term care program is similar to Social Security in that people contribute money to pay for current beneficiaries in the expectation they’ll receive benefits when they need them. Yet from an actuarial standpoint, the CLASS Act is different, because participation is voluntary, and benefits are intended to be financed exclusively through premiums, rather than a separate stream of tax revenue. Richard Foster, the chief actuary of the Centers for Medicare and Medicaid Services, warned well before the health care law passed that there wouldn't be enough participants to make the CLASS Act sustainable over time.
“Thirty-six years of actuarial experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue," Foster wrote in one email disclosed by the GOP.
The administration eventually ignored Foster and pushed more favorable analysis from the Congressional Budget Office. The CBO uses a 10-year budget window, which had two key advantages for Democrats. It meant that the longer-term actuarial problems wouldn’t be exposed. And because the CLASS Act was to collect five years of premiums before paying out any benefits, the Democrats could claim a $72 billion short-term surplus in the program as deficit reduction, ignoring the obvious fact that the money would eventually have to pay for benefits and it would begin running deficits.