Bloomberg News

Kennedy-Backed Long-Term Care Program Scrapped by Sebelius

October 14, 2011

(Updates with comments from McConnell in sixth paragraph.)

Oct. 14 (Bloomberg) -- A long-term disability care program shepherded into the U.S. health overhaul by Senator Edward Kennedy before his death was canceled as financially unsustainable by health secretary Kathleen Sebelius.

Republicans opposed the so-called Class Act that created the program. It will be indefinitely suspended, Sebelius said today in a statement, because the program isn’t likely to generate enough revenue to pay for its benefits.

Democrats led by Kennedy created the plan 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.

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

Republicans celebrated the program’s demise, calling it misguided policy used as a financial gimmick to reduce cost estimates of the health law. At the time, the Congressional Budget Office subtracted $70 billion from the cost of the law thanks to Class -- which stands for Community Living Assistance Services and Supports -- contributing to $143 billion in total savings, because the program’s premiums would exceed benefits over 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.

Saving the Program

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.

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.”

Needed Changes

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 demise 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.

“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, said Kathy Greenlee, assistant secretary for aging in the Department of Health and Human Services, in a memo to the secretary.

Actuary’s Estimate

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.

Because it is voluntary, Class faced a “problem of adverse selection,” in which only people who need the insurance, or think they will, would sign up, he said.

Sebelius telegraphed the program’s demise 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.”

Republican Reaction

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.”

Ending the program may add to the deficit. The Congressional Budget Office estimated in February that total savings from the health law will be $210 billion across 10 years, of which Class accounts for $86 billion.

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.

Kennedy died in August 2009 before the health-care law was signed by Obama in March 2010.

--Editors: Andrew Pollack, Angela Zimm

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

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


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