No CLASS Today

It’s really hard for me to admit this but then-Speaker Nancy Pelosi was dead-on right about something she said. When the debate over the 2300 page Obamacare was fast and furious she made this comment about the bill, “It’s going to be very, very exciting, Congress “[has] to pass the bill so you can find out what’s in it, away from the fog of controversy.”
How right she was. HHS Secretary Kathleen Sebelius announced Friday (bad news for the administration is always released on Fridays) that the CLASS ACT, a part of Obamacare was being scrapped. This is the program that would have provided long term care to those who chose to participate in the plan. Basically one would pay into the plan while healthy and reap the benefits down the road. From the beginning Republicans pointed out the financial follies of the program.

The CLASS Act’s premiums weren’t remotely high enough to cover a likely deluge of claims. “It’s a microcosm of many of the weaknesses in the health-care reform bills,” says Steve Schoonveld of the American Academy of Actuaries (AAA), which did an analysis of the CLASS Act.

The plan’s main problem was that it encouraged what’s known as “adverse selection” — it will attract an extremely high proportion of people who are sick and near retirement, and a relatively small share of the young and healthy needed to create a sound insurance plan.

One big weakness is that the CLASS Act didn’t screen for medical problems, or even require information about them. Hence, workers or their spouses could sign up even if they’re already ill. By contrast, private plans require strict testing.

Participants in the CLASS program could also start collecting benefits after just five years, a period the AAA deems far too short. Workers and their spouses could also stop paying premiums, then rejoin when they get sick with no penalty.

And without going into the boring details, this is just one of the programs of Obamacare that used voodoo math to explain what the actual costs of the plan would be. Remember that the CBO used a 10 year window in determining the viability of the healthcare plan and they factored in an extremely liberal amount of premiums over 10 years for the CLASS ACT with only 5 years of pay-outs.

For Sebelius to pull the plug now on this program is highly unlike this administration and I don’t believe we yet know the full story of what’s going on here. One guess is that by eliminating this albatross program the administration eliminates an important objection the Republicans will have in their attempted repeal of Obamacare.

The incompetence continues.


  1. One personal benefit to me of health care reform is that more and more people are becoming aware of the actuarial profession. 🙂

    Health care reform is a great example of how today’s politics is all about feelings and not at all about reason and what would actually work. The whole thing was passed based on unworkable promises, sob stories, and villification of insurance companies.

    It’s not like the actuarial assumptions behind the rest of the bill are significantly more realistic than those behind the CLASS act piece of it.