Obama Ends Kennedy-Backed Long-Term Care Program as Too Costly to Sustain

The U.S. won’t start a long-term care plan created by the 2010 health overhaul, the largest piece of the law so far to be stopped by Congress, the courts or President Barack Obama’s administration.

The Health and Human Services Department said it would indefinitely suspend the program, known as the Class Act, calling it financially unsustainable. In doing so, officials said that deficit savings from the health law would be cut by $86 billion over a decade, from $210 billion.

“I do not see a viable path forward for Class implementation at this time,” HHS Secretary Kathleen Sebelius said yesterday in a letter to congressional leaders.

The long-term care program had been championed by Senator Edward Kennedy of Massachusetts before his death. Republicans in Congress called it an accounting gimmick whose premiums would be used to pay for other parts of the law and said Democrats vastly underestimated its future costs. The decision to shut it down validated their criticisms, they said.

The program was “a naked scam, cooking the books trying to cover up the unsustainable cost” of the health law, said Michael Steel, a spokesman for House Speaker John Boehner, an Ohio Republican, in an e-mail.

Democrats and Class supporters said it was a well-intended attempt to solve the mounting cost of long-term care for the disabled, which can be as much as $80,000 a year in a nursing home, according to an administration memo.

The administration and Congress should “continue to explore all of the options to address the critical long-term care needs of Americans,” wrote the memo’s author, Kathy Greenlee, assistant secretary for aging under Sebelius.

Kennedy’s Role

Kennedy had advocated the need for a long-term disability insurance program during his 46-year career in the Senate and pushed for Class -- Community Living Assistance Services and Supports -- as part of the health overhaul before his August 2009 death. Obama signed the health law in March 2010.

The aim was to help people disabled by illness or accident. By paying premiums while employed, beneficiaries would be eligible after five years for at least $50 a day toward health and support services provided at home. The program was billed as paying for itself.

Class was voluntary and applicants couldn’t be refused because of their medical condition, a problematic combination because healthy people might not enroll in large enough numbers to offset sick people needing benefits.

Monthly Premiums

Greenlee said in her memo that monthly premiums for the program may have been as much as $3,000 “if adverse selection is particularly serious” and too many sick people signed up.

Republicans celebrated the program’s demise, calling it misguided policy used to reduce cost estimates for the health law. At the time, the Congressional Budget Office subtracted $70 billion from the cost of the law, the amount Class premiums were estimated to exceed benefits during its first decade.

The program “was destined to fail in the real world,” said Senator Mitch McConnell of Kentucky, the senior Republican in the chamber, in a statement.

Advocates for the program said it can be salvaged.

“Where our position has been and continues to be is that they have the authority to move forward and twist this Rubik’s Cube until a solution pops up,” Connie Garner, executive director of AdvanceClass, said in a telephone interview before Sebelius’ announcement. Her group represents nursing homes, disability organizations and seniors’ lobby AARP in pushing for the program’s implementation.

Find Answers

Representative Frank Pallone of New Jersey, a Democrat who was one of the program’s leading proponents in the House, said the Obama administration was “wrong to abandon” it.

“Giving up on it is simply not an option,” he said in a statement. “If the program needs improving, then let’s find the way to do it.”

The government could make 95 percent of the necessary changes to help fix the program without congressional action, Garner said.

Senator Kent Conrad, a North Dakota Democrat, described an early version of the program as a “Ponzi scheme.” He later supported the law that created it. Republicans, seizing on that statement, have derided Class as an unaffordable entitlement that would cost more than it took in from premiums.

The program’s end was “sad but not surprising,” said Paul Van de Water, a Medicare and budget specialist at the Center on Budget and Policy Priorities, a nonprofit research group whose studies often support Democratic policies.

‘Good’ Idea

“The aim here was a good one,” he said in an interview. “But the program as written in law was over-constrained.”

The health law required Class to sustain itself on beneficiary premiums without taxpayer subsidies, Van de Water said, and Sebelius wasn’t allowed to begin it unless actuarial analysis showed it would be financially stable for 75 years.

The program didn’t meet that bar, Greenlee said in her memo. Steps the administration might have taken to avoid the program’s collapse, such as requiring people to buy the insurance, risked violating the law.

“We do not have a path to move forward,” Greenlee said in a conference call with reporters.

The chief actuary for the U.S. Centers for Medicare and Medicaid Services, Richard Foster, predicted in an April 2010 report that the program would cost the federal government more than it took in starting in 2025.

Nod to Future

Sebelius telegraphed the program’s fate in February when she told a Senate Finance Committee hearing that Class “will not start unless we can be certain it will be solvent and self- sustaining into the future.”

A spokesman for her department, Richard Sorian, confirming last month that Class was on the ropes, said that “it is an open question whether the program will be implemented.”

Republicans in Congress plan to keep investigating the program that Democrats used to “inflate alleged savings and mask the true costs” of the health law, said Debbee Keller, a spokeswoman for the chairman of the House Energy and Commerce Committee, Republican Fred Upton of Michigan, whose panel has jurisdiction. “Everyone saw the writing on the wall that this program was not sustainable, yet the administration continued to stand behind the program right up until this announcement.”

The Senate Appropriations Committee passed a fiscal 2012 spending bill for the health department on Sept. 21 that eliminated funding to enact Class, saying it wasn’t clear whether it would proceed. Obama had asked for $120 million for the program.

To contact the reporters on this story: Alex Wayne in Washington at awayne3@bloomberg.net; Drew Armstrong in Washington at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net

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