NCPA - National Center for Policy Analysis


December 8, 2009

Like other entitlements before it, the CLASS (Community Living Assistance Service and Supports) health insurance scheme will force the next generation of Americans to bear its true cost, says David Gratzer, a Senior Fellow with the Manhattan Institute.

Just as private insurers already do, CLASS means the government can take your money now in exchange for long-term care insurance.  But in a private insurance plan, "pay now for problems later" means just that.   In Washington, government-run "social insurance" works a little differently, says Gratzer:

  • Congress' pay-as-you-go programs prices premiums for today's likely costs, not tomorrow's potential risks.
  • Politicians look generous because pay-as-you-go premiums usually force the next generation of Americans to pay the true cost of today's entitlements.
  • For example, the base payroll tax rate for Social Security is now 12.4 percent, quite a leap from the original rate of just 2 percent.

When it priced the Senate health bill, the Congressional Budget Office (CBO) noted that CLASS "premiums would be set to cover the full cost of the program as measured on an actuarial basis" and estimated that incoming premiums would cut Washington's projected deficit by $72 billion by 2019, says Gratzer.  However:

  • Later in the same report the CBO stated that: "In the decade following 2029, the CLASS program would begin to increase budget deficits."
  • In other words, the Senate health bill looks more fiscally responsible than the House bill because it front-loads windfall cash flow from CLASS, then backloads cost and risk to your grandchildren long after this Congress is safely (and comfortably) retired.
  • Under CLASS, taxpayers bear the risk of a shortfall -- and shortfalls have appeared for every social insurance plan ever created by Washington.

When he rose to the presidency, Obama derided Washington politicians who "kick the can further down the road," passing costly problems from one generation to the next without the courage to solve them.  Yes, assisted living might just be America's next big health challenge.  Kicking another empty can down another bumpy road is not a responsible solution, says Gratzer.

Source: David Gratzer, "Yet another new Entitlement," Washington Times, December 6, 2009.

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