The Obama administration Friday pulled the plug on a major program in the president's signature health overhaul law -- a long-term care insurance plan dogged from the beginning by doubts over its financial solvency.
Targeted by congressional Republicans for repeal, the long-term care plan became the first casualty in the political and policy wars over the health care law. The program had been expected to launch in 2013.
"This is a victory for the American taxpayer and future generations," said Sen. John Thune, R-S.D., spearheading opposition in the Senate. "The administration is finally admitting (the long-term care plan) is unsustainable and cannot be implemented."
Proponents, including many groups that fought to pass the health care law, have vowed a vigorous effort to rescue the long-term care plan, insisting that Congress gave the administration broad authority to make changes.
Known as CLASS, the Community Living Assistance Services and Supports program was a longstanding priority of the late Massachusetts Democratic Sen. Edward M. Kennedy.
Although sponsored by the government, it was supposed to function as a self-sustaining voluntary insurance plan, open to working adults regardless of age or health. Workers would pay an affordable monthly premium during their careers, and could collect a modest daily cash benefit of at least $50 if they became disabled later in life. Beneficiaries could use the money for services to help them stay at home, or to help with nursing home bills.
But a central design flaw dogged CLASS from the beginning. Unless large numbers of healthy people willingly sign up during their working years, soaring premiums driven by the needs of disabled beneficiaries would destabilize it, eventually requiring a taxpayer bailout.
After months insisting that problems could be resolved, Health and Human Services Secretary Kathleen Sebelius, finally admitted Friday she doesn't see how that can be done.
"Despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time," Sebelius said in a letter to congressional leaders.
The law required the administration to certify that CLASS would remain financially solvent for 75 years before it could be put into place.
But officials said they discovered they could not make CLASS both affordable and financially solvent while keeping it a voluntary program open to virtually all workers, as the law also required.
Monthly premiums would have ranged from $235 to $391, even as high as $3,000 under some scenarios, the administration said. At those prices, healthy people were unlikely to sign up. Suggested changes geared at discouraging enrollment by people in poor health would have opened the program to court challenges, officials said.
"If healthy purchasers are not attracted ... then premiums will increase, which will make it even more unattractive to purchasers who could also obtain policies in the private market," Kathy Greenlee, the lead official on CLASS, said in a memo to Sebelius. That "would cause the program to quickly collapse."
That's essentially the same conclusion that one the government's top experts reached in 2009. Nearly a year before the health care law passed, Richard Foster, head of long-range economic forecasts for Medicare warned administration and congressional officials that CLASS would be unworkable.
His warnings were disregarded, as Obama declared his support for adding the long-term care plan to his health care bill.
The demise of CLASS immediately touched off speculation about its impact on the federal budget. Although no premiums are likely to be collected, the program still counts as reducing the federal deficit by about $80 billion over the next ten years. That's because of a rule that would have required workers to pay in for at least five years before they could collect any benefits.
"The CLASS Act was a budget gimmick that might enhance the numbers on a Washington bureaucrat's spreadsheet but was destined to fail in the real world," said Senate Republican Leader Mitch McConnell of Kentucky.
Administration officials said Obama's next budget would reflect the decision not to go forward. Even without CLASS premiums, they said Obama's health care law will still reduce the deficit by more than $120 billion over 10 years.
Kennedy's original idea was to give families some financial breathing room. The burden of long-term care is growing. Most families cannot afford to hire a home health aide for a frail elder, let alone pay nursing home bills. Long-term care is usually provided by family members, often a spouse who may also have health problems.
Sebelius said Friday the administration remains committed to that larger goal, and wants to work with Congress and supporters of the plan to find a way. But it appears unlikely that CLASS can be salvaged in the foreseeable future. Congressional Republicans say they are committed to its repeal.