How the Obama Administration Hid Facts to Pass Obamacare

Over the weekend, Politico ran a report about how a “Trump policy shop filters facts to fit his message.” The article cited several unnamed sources complaining about the office of the Assistant Secretary for Planning and Evaluation (ASPE) within the Department of Health and Human Services (HHS), and its allegedly politicized role within the current administration.

One of the article’s anonymous sources called ASPE’s conduct over the past 18 months “another example of how we’re moving to a post-fact era.” Richard Frank, a former Obama appointee and one of the few sources to speak on the record, said that he found the current administration’s “attack on the integrity and the culture of the office…disturbing.”

As a congressional staffer conducting oversight of the CLASS Act in 2011-12, I reviewed thousands of pages of e-mails and documents from the months leading up to Obamacare’s passage. Those records strongly suggest that ASPE officials, including Frank, withheld material facts from Congress and the public about CLASS’s unsustainability, because full and prompt disclosure could have jeopardized Obamacare’s chances of passage.

About the CLASS Act ‘Ponzi scheme’

The Community Living Assistance Services and Supports program, or CLASS for short, intended to provide a voluntary insurance benefit for long-term care. Included as part of Obamacare, the program never got off the ground. In October 2011, HHS concluded it could not implement the program in an actuarially sound manner; Congress repealed the program entirely as part of the “fiscal cliff” deal enacted into law in the early days of 2013.

CLASS’s prime structural problem closely resembled that of the Obamacare exchanges—too many sick people, and not enough healthy ones. Disability lobbyists strongly supported the CLASS Act, hoping that it would provide financial support to individuals with disabilities. However, its voluntary nature meant that the more people already with disabilities enrolled and qualified for benefits, the higher premiums would rise, thereby discouraging healthy people from signing up.

Moreover, although actuarially questionable in the long-term, CLASS’s structure provided short-term fiscal benefits that aided Obamacare’s passage. Because CLASS required a five-year waiting period to collect benefits, the program would generate revenue early in its lifespan—and thus in the ten-year window budget analysts would use to score Obamacare—even if it could not maintain balance over a longer, 75-year timeframe.

This dynamic led the Senate Budget Committee Chairman Kent Conrad (D-ND), to dub CLASS “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of.”

Internal Concerns Minimized in Public

A report I helped draft, which several congressional offices released in September 2011—weeks before HHS concluded that program implementation would not go forward—highlighted concerns raised within the department during the debate on Obamacare about CLASS’ unsustainable nature. For instance, in September 2009, one set of talking points prepared by ASPE indicated that, even after changes made by Congress, CLASS “is still likely to create severe adverse selection problems”—i.e., too many sick people would enroll to make the program sustainable.

Frank told me that, during one public speech in October 2009, “I spent about half my time setting out the problems with CLASS that needed to be fixed.” He did indeed highlight some of the actuarial challenges the CLASS program faced. But Frank’s remarks, at a Kaiser Family Foundation event, closed thusly:

We’ve, in the department, have modeled this extensively, perhaps more extensively than anybody would want to hear about [laughter] and we’re entirely persuaded that reasonable premiums, solid participation rates, and financial solvency over the 75-year period can be maintained. So it is, on this basis, that the Administration supports it that the bill continues to sort of meet the standards of being able to stand on its own financial feet. Thanks.

Frank told me over the weekend that his comments “came at the end of my explaining that we were in the process of addressing those issues” (emphasis mine). But Frank actually said that the Obama administration was “entirely persuaded” of CLASS’ solvency, which gives the impression not that the department had begun a process of addressing those issues, but had already resolved them.

Frank’s public comments notwithstanding, ASPE had far from resolved the actuarial problems plaguing CLASS. Two days after his speech, one of Frank’s employees sent around an internal e-mail suggesting that the CLASS Act “seems like a recipe for disaster.”

But the ‘Fixes’ Fall Short

In response to these new analyses, HHS and ASPE came up with a package of technical fixes designed to make the CLASS program actuarially sound. One section of those fixes noted that “it is possible the authority in the bill to modify premiums will not be sufficient to ensure the program is sustainable.”

However, the proposed changes came too late:

  • No changes to the CLASS Act made it into the final version of Obamacare, which then-Majority Leader Harry Reid (D-NV) filed in the Senate on December 19, 2009.
  • The election of Scott Brown (R-MA) to replace the late Kennedy in January 2010 prevented Democrats from fixing the CLASS Act through a House-Senate conference committee, as Brown had pledged to be the “41st Republican” in the Senate who would prevent a conference report from receiving a final vote.
  • While the House and Senate could (and did) pass some changes to Obamacare on a party-line vote through the budget reconciliation process, the Senate’s “Byrd rule” on inclusion of incidental matters in a budget reconciliation bill prevented them from addressing CLASS.

The White House’s own health care proposal, released in February 2010, discussed “a series of changes to the Senate bill to improve the CLASS program’s financial stability and ensure its long-run solvency.” But as HHS Secretary Kathleen Sebelius later testified before the Senate Finance Committee, the “Byrd rule” procedures for budget reconciliation meant that those changes never saw the light of day—and could not make it into law.

Kinda Looks Like a Conspiracy of Silence

By the early months of 2010, officials at ASPE knew they had a program that they could not fix legislatively, and could fail as a result. Yet at no point between January 2010, when ASPE proposed its package of technical changes, through Obamacare’s enactment, did anyone within the administration admit that the program could prove impossible to implement.

Over the weekend, I asked Frank about this silence. He responded that “when the reconciliation package was shelved”—which I take to mean that the CLASS changes did not make it into the reconciliation bill, which did pass—“we began working on regulatory remedies that might address the flaws in CLASS.” However, from the outset some of Frank’s own employees believed those changes might prove insufficient to make the program actuarially sound, as it later proved.

To put it another way: In February 2011, Sebelius testified before the Senate Finance Committee that “the snapshot [of CLASS] in the bill, I would absolutely agree, is totally unsustainable.” She, Frank, and others within the administration had known this fact one year previously: They just hoped they could arrive at a package of regulatory changes that would overcome the law’s structural flaws.

But did anyone within the administration disclose that CLASS was “totally unsustainable” as written back in February 2010? No, because doing so could have jeopardized Obamacare’s chances of passage. The law passed the House on a narrow 219-212 margin.

If HHS had publicly conceded that CLASS could become a “zombie” program—one that they could not fix, but could not remove—it would have caused a political firestorm, and raised broader questions about the bill’s fiscal integrity that could have prevented its enactment.

Was Obamacare Sold on a Lie?

Conservatives have pilloried Obamacare for the many false statements used to sell the law, from the infamous “Lie of the Year” that “If you like your plan, you can keep it” to the repeated promises about premium reductions, Barack Obama’s “firm pledge” to avoid middle-class tax increases, and on and on.

But there are sins of both commission and omission, and the CLASS Act falls into the latter category. Regardless of whether one uses the loaded term “lie” to characterize the sequence of events described above, the public statements by HHS officials surrounding the program prior to Obamacare’s enactment fell short of the full and unvarnished truth, both as they knew it at the time, and as events later proved.

Politico can write all it wants about ASPE under Trump “filter[ing] facts to fit his message.” But ASPE’s prior failure to disclose the full scope of problems the CLASS Act faced represents a textbook example of a bureaucracy hiding inconvenient truths to enact its agenda. If anonymous HHS bureaucrats now wish to attack a “post-fact era” under Trump, they should start by taking a hard look in the mirror at what they did under President Obama to enact Obamacare.

This post was originally published at The Federalist.

More CBO Transparency Could Have Prevented Obamacare’s CLASS Debacle

Mere days into a Republican Congress, Democrats are making charges of ideological bias when it comes to the majority’s handling of the Congressional Budget Office. A group of leading Senate Democrats wrote a letter to House Speaker John Boehner specifically noting that “a CBO director should not be required to revise the score of the Affordable Care Act in order to please partisan interests.” It’s an ironic charge, given that it’s far from partisan to question why the CBO failed to perform analyses that could have predicted the collapse of an $86 billion Obamacare program — exactly what happened under its current director, Doug Elmendorf.

The program in question, Community Living Assistance Services and Supports, or CLASS, was designed to provide cash benefits for those needing long-term services and support. CLASS made it into Obamacare at the behest of then-Sen. Ted Kennedy, and over the objections of both Republicans and moderate Democrats, who considered it fiscally unsustainable; then-Senate Budget Committee Chairman Kent Conrad, D-N.D., famously dubbed CLASS “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of.” And so it proved — in October 2011, less than two years after the law’s passage, the Department of Health and Human Services determined CLASS could not be implemented in a fiscally solvent manner, and in January 2013, Congress repealed it entirely.

But Congress and the American people could have been spared this trouble had CBO performed a more thorough analysis of CLASS. In 2009, the budget agency assumed that CLASS’s administrative expenses would remain confined to three percent of premiums, even though HHS’ own actuary later called this requirement “unrealistic and undesirable.” The actuary hired by HHS went on to estimate total expenses at 20 percent of premiums — nearly seven times the level specified in the law.

The unrealistically low administrative expenses go to the heart of CLASS’s structural flaws. The program proved fiscally unsustainable because it faced a classic actuarial death spiral—a lack of healthy people paying into the pool to fund benefits for those needing care.

Had CBO formally analyzed CLASS’s administrative expenses, it likely would have concluded that the unrealistic assumptions written into the law meant premiums would eventually have to rise, benefits fall, or both, to meet the shortfall — making the program even more unattractive to healthy individuals, and further imperiling its solvency. The CBO does have models to estimate the cost of insurance; with Obamacare, it stated in November 2009 that insurance exchanges would reduce the administrative costs of individually-purchased coverage. But when it came to CLASS, CBO did not perform a similar analysis.

Likewise, CBO at no point attempted to quantify the potentially massive costs to states that CLASS would have imposed. The program would have required state Medicaid programs to create a benefit eligibility system similar to that used by the Social Security disability insurance program. That program costs nearly $3 billion to administer every year — meaning CLASS could easily have imposed costs to states of $20 billion-30 billion over a decade.

Within HHS, officials expressed concern that CLASS would “create significant new burdens on the states.” Coming at a time when governors of both parties were criticizing the “mother of all unfunded mandates” in the form of Obamacare’s Medicaid expansion, a CBO finding that CLASS imposed mandates on states in the billions, or tens of billions, would have prompted bipartisan outrage — and could have scuttled the program entirely. But from its introduction to its repeal, CBO at no point even acknowledged the significant cost to states associated with CLASS.

In fairness to CBO, the months leading up to Obamacare’s passage were by far the busiest in my time as a Capitol Hill staffer. Lack of enough hours and lack of sleep could, and did, cause details to slip through the cracks; to quote Nancy Pelosi, we really did have to pass the bill to find out what was in it. But that neither excuses nor explains why CBO has not publicly acknowledged the shortcomings outlined above, and what if anything it needs to change — whether in resources, oversight, or both — to improve its analysis going forward.

Judging from his silence on CLASS, Elmendorf may view protecting his office’s budget analysts as a prime objective of a CBO director. As much as I value loyalty, CBO’s prime loyalty should lay to Congress — and ultimately to the public, which funds both CBO and the programs it analyzes. While Elmendorf has taken measures to release more information publicly — developments I welcome — such steps generally fall into the realm of making CBO less opaque, rather than truly transparent.

Democrats’ political posturing aside, it’s not partisan to ask for a public explanation why an independent budget office did not produce analyses that could have revealed the instability of an $86 billion “Ponzi scheme” before Congress enacted it into law. In fact, the principles of good governance should compel the CBO in exactly this direction. Hopefully CBO’s next director, whoever he or she is, will move more rapidly down the road of this much-needed transparency.

This post was originally published at the Washington Examiner.

Obamacare Challenges: Where the Conventional Wisdom Falls Short

Since the U.S. Court of Appeals for the D.C. Circuit struck down an Internal Revenue Service regulation implementing Obamacare, some observers have predicted that the IRS rule would ultimately be upheld. The regulation extends federal subsidies to individuals purchasing insurance from federal exchanges and not just state-run exchanges, as the Affordable Care Act specifies. But when it comes to legal challenges regarding the health-care law, the conventional wisdom has sometimes been wrong.

Consider, for instance, the Supreme Court’s decision upholding Obamacare two years ago. The day that the court ruled in June 2012, President Barack Obama said: “Earlier today, the Supreme Court upheld the constitutionality of the Affordable Care Act.

Actually, the court was more nuanced. On Page 58 of the ruling in National Federation of Independent Business v. Sebelius, the justices wrote: “The Affordable Care Act is constitutional in part and unconstitutional in part.” While the court upheld the individual mandate as a permissible exercise of the taxation power, it struck down provisions of the ACA’s expansion of Medicaid as unconstitutional “economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion.”

Two years later, a digital campaign on the White House Web site argues for states to expand Medicaid under the ACA–and warns of dire consequences for those that do not. But the administration embarked on the campaign because the Supreme Court made Medicaid expansion optional for states.

It’s also worth noting that seven of the nine Supreme Court justices agreed that it was unconstitutional to mandate Medicaid’s expansion. Those seven justices included Stephen Breyer, previously a staffer for Sen. Edward Kennedy, and Elena Kagan, a former solicitor general in the Obama administration. So those predicting that some judges and justices would preserve the IRS rule based solely on which president appointed them to the bench may yet be disappointed.

Legal decisions don’t always break down along party lines or meet political talking points. That’s something to bear in mind as the cases wind through the courts.

This post was originally published at the Wall Street Journal Think Tank blog.

Profits Before Principles: How AARP Wins When Seniors Lose

A report originally compiled by staff for Sen. Jim DeMint.

REPORT HIGHLIGHTS

  • AARP functions as an insurance conglomerate with a liberal lobbying arm on the side.  Independent experts and former AARP executives admit that the organization’s billions of dollars raised from its business enterprises – most notably the sale of health insurance plans – have compromised the organization’s mission and independence.
  • AARP depends on profits, royalties, and commissions to make up over 50% of its annual budget.  Membership dues from seniors account for only about 20% of AARP’s revenue.
  • AARP’s $458 million in health insurance revenue in 2011 would rank it as the nation’s sixth-most profitable health insurer.
  • The health care law, which AARP lobbied heavily for, could lead to over $1 billion in new AARP health insurance profits over the next decade by forcing seniors off Medicare Advantage plans into Medigap supplemental coverage.
  • AARP earns more profit the higher premiums rise on seniors in Medigap plans, charging a “royalty fee” of 4.95% of every premium dollar paid by seniors on these plans.
  • In 2011, AARP failed to disclose to its senior membership that it lobbied Congress to oppose Medigap reform, legislation that could lower senior premiums by as much as 60%, and save seniors $415 per year on average.
  • AARP could lose as much as $1.8 billion in revenue over ten years if Medigap reforms pass and successfully lower senior premiums.
  • Documents show close coordination between Obama Administration and AARP, including efforts to deceive the public.  In November 2009, a senior AARP executive wrote to the White House saying “we will try to keep a little space between us” on health care – because AARP’s “polling shows we are more influential when we are seen as independent, so we want to reinforce that positioning….The larger issue is how best to serve the cause.”
  • AARP has benefitted by supporting the Obama Administration’s unpopular health care law.  Unlike other forms of insurance, AARP’s Medigap insurance plans were exempted from many of the health care law’s mandates, including the ban on pre-existing condition discrimination.
  • The Obama Administration has not publicly criticized AARP’s business practices, even though it has publicly attacked other insurance companies with much smaller profit margins than those generated by AARP’s Medigap insurance.
  • Democrats continue to praise AARP – HHS Secretary Sebelius called them the “gold standard” for “accurate information” – even though AARP earns more profit the higher Medigap premiums rise for seniors.

Even though President Obama has criticized Republicans for placing seniors at the mercy of insurance companies, the health care law he signed allows organizations like AARP to continue discriminating against Medigap applicants with pre-existing conditions.

 

Introduction

The AARP bills itself as the nation’s premier senior advocacy group, but has opposed important reforms to Medigap supplemental insurance that would save seniors, on average, hundreds of dollars a year.

Why? There are $1.8 billion reasons.

The reforms currently being proposed to Medigap would drastically reduce the “royalty fees” AARP generates by peddling insurance to its members by an estimated $1.8 billion over ten years. If AARP supported these reforms, which are sure to save seniors money, the lobbying group would lose billions.

This report shows how the AARP has a history of being compromised by its lucrative insurance businesses.  The pressure group’s opposition to Medigap reform is just the latest instance where its financial enterprises have trumped the well-being of its members.

AARP is mounting a “You’ve Earned a Say” campaign to solicit member viewpoints about how to reform entitlements, but our examination of the organization’s actions over the years shows AARP executives, who seek to boost their bottom lines, always have the biggest say.

The AARP Empire

Founded in 1958, AARP is now an organization with an annual budget exceeding $1 billion.  The organization spent $206 million to acquire its headquarters building in Washington, DC more than a decade ago.[1]  According to its most recently filed tax returns, AARP spent more than $246 million on postage, and over $280 million on compensation in 2010.[2]  In that same year, AARP provided compensation of over $100,000 to 543 separate employees, including one senior executive who received nearly $1.2 million in compensation.[3]

While AARP claims to be a membership-driven organization, in reality most of its revenue comes not from member dues but from “royalty fees” generated from the sale of other products, namely health insurance.  “Royalty fees” are payments AARP receives for putting its brand name on certain products and services.  So while insurance companies provide a tangible product and service in exchange for the premiums they charge, AARP receives more than half a billion dollars per year for essentially playing the middle man.

According to its 2011 financial statements, more than half of AARP’s revenue came from royalty fees – over $704 million of its $1.35 billion in total revenue last year.[4]  Revenues from health insurer United Health Group comprised nearly two-thirds of AARP’s total “royalty fee” revenue, or $457.6 million.[5]  By comparison, in 2011 AARP generated only $265.8 million from membership dues – just over half the amount received from the sale of AARP-branded insurance products.[6]

AARP’s royalty fees have risen significantly in recent years, making the organization ever more dependent on the sale of insurance policies to fund AARP’s massive payroll.  Between 2001 and 2011, AARP’s total royalty fees rose by more than 350% – from $196.7 million in 2001 to over $704 million last year.[7]  Much of this increase comes from additional health insurance-related revenue.  Over the past five years, AARP has generated over $2 billion in revenue from United Health Group alone – $284 million in 2007,[8] $414 million in 2008,[9] $427 million in 2009,[10] $441 million in 2010,[11] and $458 million in 2011.[12]

AARP’s $458 million in insurance revenue in 2011 would rank it as the nation’s sixth-most profitable insurer, based on data collected by Fortune magazine.[13]  For instance, insurer Health Net generated only $204 million in net revenue last year – on over $13.6 billion in total revenue.[14]  By contrast, AARP’s $458 million in insurance-based “royalty fees” go directly to the organization’s bottom line.

AARP’s Questionable Insurance Practices

Even as it claims to be a non-profit advocacy organization, AARP has received criticism from many quarters for its heavy reliance on revenue from insurance sales.  Marilyn Moon, a former AARP executive, said “there’s an inherent conflict of interest” because AARP is “very dependent on sources of income.”[15]

AARP’s dependence on “royalty fee” income has resulted in numerous controversies over the years.  For instance, in 2008 a congressional inquiry[16] found that AARP was using potentially misleading language in its marketing materials; seniors thought they were buying comprehensive health insurance, but in reality purchased policies covering only a limited amount of health costs.  Following a public outcry, AARP ordered an investigation,[17] and eventually stopped selling these types of limited benefit plans.[18]

More recently, the tax implications of AARP’s significant “royalty fees” have come under scrutiny.  An investigation by several members of the House Ways and Means Committee last year raised questions about whether or not AARP’s licensing revenue should be considered “royalty fees” or “commissions.”[19]  If the revenue in question should in fact be classified as “commissions,” then AARP could owe significant amounts of back taxes on billions of dollars in revenue.  The Ways and Means members referred the matter to the Internal Revenue Service, and requested an IRS investigation.[20]

The Medigap Cash Cow

The Ways and Means member investigation also made clear that one of AARP’s prime sources of revenue is the sale of Medigap-branded supplemental insurance plans.  AARP does license Medicare Advantage plans, along with a Medicare Part D prescription drug plan.  However, AARP receives a flat financial payment from United Health Group for its Medicare Advantage and Part D plans, regardless of the number of people enrolled in each plan.  Conversely, AARP receives a percentage of total Medigap premiums paid – meaning that while AARP receives no financial benefits if its Medicare Advantage or Part D plan enrollment rises, it will receive a windfall if its Medigap plan generates additional customers, or those customers pay higher premiums.

The health care law includes more than $300 billion in cuts to Medicare Advantage.[21]  As a result of these payment reductions, enrollment in Medicare Advantage plans will be cut in half, with 7.4 million fewer seniors enrolled.[22]  Many of these 7.4 million seniors will need supplemental coverage through Medigap, to fund catastrophic expenses not covered by Medicare.

Because the health care law will have the effect of migrating millions of seniors from Medicare Advantage plans – which are less lucrative financially to AARP – to more-lucrative Medigap supplemental coverage, the Ways and Means member report concluded that the organization could receive a windfall exceeding $1 billion over the next ten years thanks to the law.[23]

Medigap Reform with Bipartisan Appeal

The potential Medigap-related windfall for AARP resulting from the health care law is not the only instance in which the organization’s financial interests have coincided with its policy positions.  In recent months, a renewed focus on reforming entitlements, and making Medicare more sustainable, has prompted new attention to various proposals to reform Medigap plans.  While these plans would benefit most seniors financially, they would harm AARP’s financial interests – so perhaps not surprisingly, AARP has decided to oppose them.

Under the proposals being discussed, the traditional Medicare program would be reformed to provide catastrophic coverage, while Medigap would provide limited supplemental coverage.  For the first time in the program’s history, seniors would know their Medicare costs would not exceed a set amount.  In exchange, Medigap supplemental coverage, which covers co-payments and deductibles, would also be reformed, so that seniors would face an out-of-pocket deductible not covered by insurance.

Reform to Medigap insurance plans has generated bipartisan appeal.  Versions of this reform have been proposed by the Simpson-Bowles Commission,[24] the Rivlin-Domenici commission on debt and deficits, [25] Sens. Tom Coburn (R-OK) and Joe Lieberman (D-CT),[26] and even President Obama’s most recent budget.[27]  Policy-makers in both parties believe that, by limiting first-dollar coverage of medical expenses through Medigap, seniors would serve as smarter purchasers of health insurance, such that overall spending in Medicare might decline modestly.

Although some seniors might pay slightly more out-of-pocket under these changes, a study from the Kaiser Family Foundation said that “the savings for the average beneficiary” under Medigap reform “would be sufficient to more than offset his or her new direct outlays for Medicare cost sharing.”[28]  According to Kaiser, nearly four in five Medigap policy-holders would receive a net financial benefit from this reform – with those savings averaging $415 per senior each year – because creating a new deductible for all Medigap plans will cause premiums to fall.[29]

Under Medigap reform, seniors would spend much less money on premiums.  Just as with automobile insurance, or with Health Savings Account policies for individuals under age 65, adopting a higher deductible would yield significant premium savings for Medigap policies.  The Kaiser study found that under one proposed reform, Medigap premiums would plummet by an average of over 60%, from nearly $2,000 per year to only $731.[30]  Because less money from Medigap policy-holders would be diverted to administrative overhead, seniors would be able to keep their own money to finance their own health care.

AARP Wins When Seniors Lose

The overall premise of Medigap reform is simple: Less money going to insurance companies means greater financial savings for most seniors.

Unfortunately for AARP, things are not that simple.  As one independent financial adviser has said, AARP’s sales tactics are a “dirty little secret” that are “all about fattening the coffers of the organization.”  And the biggest “dirty little secret” of all is that AARP has a major financial incentive to keep premiums high for seniors.[31]

The House Ways and Means Committee members’ investigation last year found that AARP receives a percentage of each senior’s Medigap premium dollar.[32]  The organization’s “royalty fee” totals 4.95% of every premium dollar paid.  So, similar to a salesman pushing the most expensive product in order to receive a higher commission, regardless of the customer’s needs,  AARP has an incentive to sell more Medigap policies – and to sell the most expensive Medigap policies – even if seniors do not need the insurance.  The higher the cost of seniors’ Medigap policies, the more money AARP makes.

Based on AARP’s existing contractual arrangements and the Kaiser Family Foundation study projections, it is relatively simple to calculate the projected financial loss to AARP under Medigap reform.[33]   If premiums decline by more than $1,200 per year, as the Kaiser study predicted, AARP stands to lose an average of $62 in “royalty fees” for every senior enrolled in its Medigap insurance.  With nearly 3 million seniors enrolled in AARP’s Medigap plan, those numbers add up – over $181 million in one year, and $1.8 billion over the course of a decade.[34]  With the organization generating total revenue of $1.35 billion in 2011, Medigap reform would result in an immediate loss of over 13% of AARP’s annual revenue.[35]

AARP’s Covert Campaign to Kill Medigap Reform

Given its financial interest in keeping Medigap premiums high, it is perhaps unsurprising that AARP engaged in a covert lobbying campaign designed to kill Medigap reform, and keep its existing “royalty fee” regime in place.  Last year AARP wrote to members of the congressional “supercommittee” on deficit reduction, asking them not to include Medigap reforms – which, as noted above, would benefit four out of five Medigap policy-holders, but significantly harm AARP’s financial interests.

AARP published excerpts of their letter to the “supercommittee” on its website.[36]  But AARP has yet to put anything on its website indicating that the organization has been privately contacting Members of Congress, asking them not to reform Medigap – and preserve AARP’s lucrative Medigap commissions.

Two years ago, an AARP spokesman told CNN that the organization doesn’t lobby Congress on Medigap issues “at all.”[37]  While the organization is apparently trying to keep its actions secret, the fact remains that AARP is lobbying Congress against Medigap reform, opposing changes that will just so happen to save AARP members tens of billions, but that would also cost AARP billions.

AARP Works Against Its Members

Whereas last year AARP actively lobbied against Medigap reforms that would help its members but hurt AARP financially, three years ago the organization did NOT lobby for Medigap reforms that would help its members but could hurt AARP financially.  Specifically, even after enactment of the health care law, Medigap plans are still permitted to impose waiting periods on senior citizen applicants with pre-existing conditions.  AARP, despite its stated support for ending pre-existing condition restrictions,[38] imposes waiting periods on its own members applying for Medigap coverage[39] – and stood idly by as an attempt to end this practice within Medigap was stricken from the health care bill before it became law.

Section 1234 of House Democrats’ June 2009 health care discussion draft would have prohibited pre-existing condition discrimination for certain Medigap applicants – achieving one of AARP’s chief goals.[40]  However, last year the Washington Post claimed that the Medigap provision “was dropped from the legislation during congressional negotiations because it would have increased Medicare costs, according to a House Democratic congressional aide.”[41]

The Congressional Budget Office scored provisions eliminating pre-existing condition discrimination in Medigap as costing about $400 million per year.[42]  However, AARP had previously stated that the organization “would gladly forego every dime of revenue to fix the health care system.”[43]  As noted above, its $700 million in “royalty fees” last year far exceeds the $400 million annual cost of ending Medigap pre-existing condition discrimination.  It remains unclear why this provision was dropped from the bill, if AARP was so interested in foregoing profits in order to help its members.

In addition to allowing AARP to continue imposing waiting periods on Medigap applicants, the law enacted in March 2010 also exempted AARP’s lucrative Medigap policies from several other new insurance regulations.[44]  At a December 2009 hearing,[45] AARP’s Board Chair claimed to have no idea that legislation that she and the AARP had previously endorsed included numerous exemptions for Medigap plans, including an exemption from the ban on pre-existing condition discrimination.[46]

After the numerous Medigap-related exemptions included in the health care law were publicly exposed, AARP eventually endorsed legislative changes to end some of the exemptions.[47]  However, despite this public turn-around, AARP has yet to explain to the public why it allowed these exemptions to be enacted in the first place – if the organization is not motivated by its own financial interests, as it claims.  Moreover, the organization has not apologized to its members for failing to act and end pre-existing condition discrimination in Medigap plans two years ago, and the impact such failure has had on AARP’s own members.

Members REVOLT

Documents released by a House Energy and Commerce Committee oversight investigation reveal just how strongly AARP members opposed their organization’s behavior during the health care debate three years ago.  The files show overwhelming opposition from AARP members to the legislation, based on summaries of AARP call center activity:

July 23, 2009 – 77 members support; 1,031 oppose

July 28, 2009 – 36 members support; 4,174 oppose

July 29, 2009 – 23 members support; 2,656 oppose[48]

On a single day (July 28, 2009) during the height of the debate, 1,897 individuals cancelled their membership in AARP to protest its position on the health care bill.[49]

The documents also reveal that AARP members were well aware of the organization’s financial conflicts, and believed that these conflicts were influencing AARP policy.  One member from Oklahoma called in and complained that:

AARP has a conflict of interest between selling insurance and helping senior citizens.  Until it decides which one is more important, the $$$ or the people, it is deceiving old folks into thinking it works for their benefit.  Actually it works for the insurance companies [sic] benefit and interests, which is why it is so gung-ho on the health care reform bill….Not OK with me.[50]

Members also complained about “perceived partisanship on AARP’s part” – and the documents reveal this to be an accurate concern.  In November 2009, a senior AARP executive wrote to the White House saying “we will try to keep a little space between us” on health care – because AARP’s “polling shows we are more influential when we are seen as independent, so we want to reinforce that positioning….The larger issue is how best to serve the cause.”[51]  In other words, the organization was attempting to protect its image by publicly deceiving its members – acting detached in public, even as AARP was frantically lobbying behind the scenes to ram the legislation through for the good of the liberal cause.

AARP’s Misguided Political Focus

It is perhaps unsurprising that AARP would focus on “serv[ing] the cause” of liberalism, because many of its senior executives have strong liberal connections.  When the organization hired its current CEO, Barry Rand, one Capitol Hill publication noted that “New AARP Chief Gave Big to Obama.”[52]  Indeed, Mr. Rand has given tens of thousands of dollars in contributions to liberal Democrats over the years.[53]  Many other members of AARP’s executive team also have strong connections to liberal causes; the head of AARP’s government relations and advocacy program was a senior adviser in the Clinton Administration,[54] while other AARP key executives have worked for Sen. Ted Kennedy,[55] Rep. Geraldine Ferraro,[56] and the National Wildlife Federation, a liberal environmental group.[57]

The political philosophy of the organization’s leadership results in AARP mounting advocacy campaigns trumpeting liberal talking points that frequently have little basis in fact.  For instance, in September 2011 AARP released an advertisement with seniors claiming that “I paid into my Medicare,” and decrying any efforts to “cut our benefits.”[58]  However, the ad did not acknowledge what an Urban Institute study makes clear: Most seniors receive more in Social Security and Medicare benefits than they paid in taxes during their lifetime.[59]  An Associated Press story based on the Urban Institute study – “What You Pay for Medicare Won’t Cover Your Costs” – was initially placed on aarp.org, but was later removed from the website, perhaps because its conclusions represent inconvenient truths to AARP.[60]

Other ads run by the AARP during last year’s debt limit debate were also debunked as false and misleading.  In June 2011, the Washington Post’s “Fact Checker” column awarded an AARP ad four “Pinocchios” for “perpetuat[ing] the worse stereotypes about how easy it would be to balance the budget.  At a time when the nation’s fiscal crisis – amid the looming retirement of the baby-boom generation – demands informed and reasoned debate, the AARP misinforms its members about the choices the nation faces.”[61]

Of course, AARP has a financial interest in misinforming its members – because the organization derives much of its revenue from preserving the status quo.  In launching a “multi-million dollar” ad campaign featuring misleading claims, AARP made clear it wanted no changes to the existing Medicare benefit structure.[62]  As outlined above, changes to the Medicare benefit – such as Medigap reform – would cost AARP billions, while saving many seniors hundreds of dollars per year.  By blocking reforms that would dent its profits, AARP hurts seniors two ways – first, by preventing seniors from saving hundreds of dollars in Medigap premiums, and second, by leaving the Medicare program less solvent for future generations.

Democrats Encourage AARP’s Abuses

Even as AARP racks up billions of dollars in insurance profits by overcharging seniors for Medigap plans, Democrats encourage these abuses by giving AARP special favors, and ignoring its questionable sales tactics.  As noted above, the health care law exempted AARP’s lucrative Medigap insurance plans from the ban on pre-existing condition discrimination, thus allowing AARP to continue to impose waiting periods on individuals applying for coverage.  However, that’s not the only exemption that Medigap coverage received in the law; Medigap insurance was also exempted from:

  • The law’s $500,000 cap on executive compensation for insurance industry executives. [63]  Thanks to this exemption, AARP can continue to pay its senior executives more than $1 million in annual compensation.[64]
  • The tax on insurance companies that will total more than $14 billion per year.[65]   Medigap insurance received this exemption even though AARP generates more money from insurance industry “royalty fees” than it received from membership dues, grant revenues, and private contributions combined.[66]
  • The requirement imposed on other health insurance plans to spend at least 85 percent of their premium dollars on medical claims.[67]  Medigap policies are currently held to a far less restrictive 65 percent standard, and the difference can be used to fund higher profits to AARP paid out of the pockets of its senior citizen members.[68]

In addition to these numerous exemptions for Medigap insurance provided in law, the Administration provided a further exemption for Medigap coverage during the rulemaking process.  The Department of Health and Human Services’ rule on insurance rate review exempted Medigap plans from further scrutiny of their premium increases.[69]  In arriving at this determination, HHS concluded that insurance plans like Medigap coverage “do not appear to be a principal focus of the Affordable Care Act” – meaning that because Medigap plans were exempted from the law’s other regulatory requirements, they should be exempted from rate review as well.[70]

Obama Administration Hypocrisy

The frequent exemptions given to Medigap insurance – a product line where AARP holds the largest market share – directly contradict the claims made by Democrats about the 2,700 page health care law.  For instance, Department of Health and Human Services Secretary Kathleen Sebelius’ official biography claims that she “is implementing reforms that end many of the insurance industry’s worst abuses.”[71]  However, with respect to Medigap insurance, that claim is entirely false.  Because Medigap plans were exempted from the law’s new requirements, organizations like AARP can continue to discriminate against applicants with pre-existing conditions, and overcharge seniors in order to generate greater profits.

Even as the Obama Administration fails to acknowledge that the health care law exempts Medigap insurance from all of its new requirements, it has attacked conservatives’ Medicare reform proposals for granting too much power to insurers.  In her speech to the 2012 Democratic National Convention, Secretary Sebelius criticized Republicans for “let[ting] insurance companies continue to cherry-pick who gets coverage and who gets left out, priced out, or locked out of the market.”[72]  And in his speech to the same convention, President Obama said that “no American should have to spend their golden years at the mercy of insurance companies.”[73]  Given that the legislation President Obama signed into law exempted Medigap coverage for seniors from virtually all of its new regulatory requirements, it is more than a little hypocritical for his Administration to criticize others for leaving seniors to the mercy of insurers.

The Administration has yet to answer a basic question at the heart of the numerous exemptions granted to Medigap insurers in their 2,700 page health care law: If the law’s protections are so good, then why are seniors left out of its supposed benefits when it comes to their supplemental insurance?  Unfortunately, the answer could be that AARP has been unwilling to forfeit its profits, and so the Obama Administration has looked the other way as the organization continues to take advantage of seniors.

Kathleen Sebelius: Watchdog or Lapdog?

Even as it has been willing to politically strong-arm insurance companies with whom it disagrees, the Obama Administration’s Department of Health and Human Services has failed to confront AARP about its questionable business practices.  In March 2010, as the Administration was gearing up to ram through its health care law, Secretary Sebelius asked other insurers to “give up some short-term profits” for the nation’s good.[74]  At the time, estimates by Fortune magazine indicated that health insurer profits averaged about 2.2 percent.[75]  Yet Secretary Sebelius made no such request of AARP to give up some of its revenues – even though its Medigap profit margin was 4.95 percent, more than double that of the insurance industry as a whole.

Shortly after the health law passed, Secretary Sebelius undertook a publicity campaign to “encourage” insurance companies to ban rescissions and extend coverage to young adults under age 26 earlier than was required under the law.  While the Secretary made very public efforts to have insurance companies “abandon…efforts to rescind health insurance coverage from patients who need it most,” she made no attempt to encourage AARP and other Medigap insurers to stop discriminating against applicants with pre-existing conditions.[76]  At an implementation briefing to Congress shortly after the law passed, Senate Republican staff asked HHS officials why the Department was asking other insurers voluntarily to change their business practices, but was not asking AARP to stop discriminating against Medigap applicants.  While Jeanne Lambrew, head of the Department’s Office of Health Reform, promised to look into the matter, the Department never took action.

Rather than ask AARP to reform its business practices, Secretary Sebelius instead has blindly offered the organization praise.  In an October 2010 speech to the AARP convention, she hailed the organization as “the gold standard in cutting through spin and complexity to give people the accurate information they need to make the best choices.”[77]  Even though AARP has a strong financial conflict-of-interest in its Medigap insurance – because the organization earns more profit when seniors pay more in premiums – Secretary Sebelius still claimed that AARP constituted “the gold standard” in giving “accurate information.”

The National Association of Insurance Commissioners (NAIC) has previously expressed strong concerns about the percentage-based compensation model under which AARP receives much of its revenue.  In fact, Section 18 of NAIC’s Producer Model Licensing Act recommends that states require explicit disclosure by insurers, and clear written acknowledgement by consumers, of any percentage-based compensation arrangement, due to the potential for abuse.  As a former insurance commissioner, Secretary Sebelius should be well aware of the financial conflicts inherent when an organization like AARP receives a percentage of every Medigap dollar paid by seniors.  Yet the Secretary apparently ignored these concerns, and went on to praise AARP as a source of impartial advice, even though even former AARP executives have criticized the organization as hopelessly compromised by financial conflicts-of-interest.

In her time heading HHS, Secretary Sebelius has undertaken clearly political actions, including those that violated the law.  Just last week, the Office of the Special Counsel publicly released a report concluding that the Secretary engaged in political activity that violated the Hatch Act prohibitions on federal officials campaigning for partisan political causes.[78]  It is therefore quite reasonable to ask whether Secretary Sebelius has also engaged in a pattern of politically-motivated selective enforcement – attacking other insurers when convenient, but failing to examine AARP’s questionable business practices, because AARP supports the President’s liberal causes.

As noted above, AARP executives e-mailed the White House in November 2009 stating that “the larger issue is how best to serve the cause.”  It would thus appear that both AARP and the Administration recognize their political interests are aligned.  Certainly the Administration’s actions – exemptions for Medigap coverage included both in statute and in rulemaking; attacks on insurers with smaller profit margins than AARP; failure to criticize AARP’s percentage-based compensation model – are consistent with a governing philosophy that permits AARP to engage in questionable and abusive behavior towards seniors, so long as AARP funnels the profits from said behavior back into supporting the Administration’s liberal causes.

In April 2010, Secretary Sebelius wrote to insurers to stop rescinding insurance policies earlier than required under the law, encouraging them “not to wait until the fall to do the right thing.”[79]  America’s seniors have been waiting for years for Secretary Sebelius, and the entire Obama Administration, to do the right thing – to apply the law fairly, without regard to political persuasion.  Unfortunately, the facts suggest that the Administration has knowingly looked the other way, and failed to take on AARP over its business practices – because political advantage outweighs the need for impartial enforcement, or extending the supposed benefits of the health care law to senior citizens.

Conclusion

Though it purports to be a seniors advocacy organization, AARP functions in many respects as an insurance conglomerate with a liberal lobbying arm on the side.  Independent experts and even former AARP executives have admitted that the organization’s billions of dollars raised from its business enterprises – most notably the sale of health insurance plans – have compromised the organization’s mission and independence.  As one consultant put it: “Either you’re a voice for the elderly or you’re an insurance company – choose one.”[80]

As this report has demonstrated, AARP has acted against its members’ interest, but in its own financial interests, on several occasions during the major health care debates of the past several years.  First AARP endorsed a health care law that gave its most lucrative product offering – Medigap insurance – a major opportunity to solicit new members, exempted those Medigap plans from the law’s regulatory regime, and allowed AARP to continue imposing waiting periods on the sickest seniors looking to buy Medigap coverage.  More recently, AARP has engaged in a covert lobbying campaign designed to kill Medigap reforms that would benefit nearly four in five policy-holders and improve Medicare’s solvency – but could cost AARP billions.

This year, AARP has embarked upon a “You’ve Earned a Say” campaign, purportedly designed to solicit members’ opinions on ways to reduce the deficit.  However, the organization has yet to solicit members’ viewpoints about its own actions.  For instance:

  1. How many members know that senior AARP executives have received over $1 million in compensation from the organization – and that 543 individuals received over $100,000 in compensation last year?
  2. How many members know that AARP has generated over $2 billion in revenue from selling health insurance plans in the past five years?
  3. How many members know that AARP imposes waiting periods on Medigap applicants with pre-existing conditions – and stood idly by as provisions to eliminate Medigap pre-existing condition discrimination were stricken from the health care law?
  4. How many members know that nearly four in five Medigap plan holders would financially benefit from reforms, to the tune of several hundred dollars per year?
  5. How many members know that Medigap reforms that would help seniors could cost AARP billions of dollars in lost revenue?

At the very least, AARP should be up-front and honest with its members about the massive financial stake it has in this debate.  Better yet, the organization should start thinking less about its bottom line and more about its members, and endorse reforms that will help the vast majority of Medigap policy-holders.

 

[1]Behind the Veil: The AARP America Doesn’t Know, report by Reps. Wally Herger and Dave Reichert, March 29, 2011,  http://herger.house.gov/images/stories/pdf/20110329aarpreport.pdf, p. 6.

[2]AARP Inc., 2010 Internal Revenue Service Form 990, http://www.aarp.org/content/dam/aarp/about_aarp/annual_reports/2010_990_aarp.pdf, p. 1.

[3] Ibid., pp. 8-9.

[4] AARP Inc., 2011 Consolidated Financial Statements,  http://www.aarp.org/content/dam/aarp/about_aarp/annual_reports/2012-05/Consolidated-Financial-Statements-2011-2010-AARP.pdf, p. 3.

[5] Page 9 of the AARP 2011 financial statements notes that “the service provider United Healthcare Corporation accounted for 65% of total royalties earned in 2011 and 2010.”  65% of the total $704 million in royalties equates to $457.6 million received from United Healthcare.

[6] Ibid., p. 3.

[7] Letter from AARP Chief Operating Officer Thomas Nelson to Rep. Dave Reichert, November 2, 2009, pp. 3-4.

[8]AARP Inc., 2008 Consolidated Financial Statements,  http://assets.aarp.org/www.aarp.org_/TopicAreas/annual_reports/assets/AARPConsolidatedFinancialStatements.pdf, pp. 4-9.

[9]Ibid., pp. 3-9.

[10]AARP Inc., 2009 Consolidated Financial Statements, http://assets.aarp.org/www.aarp.org_/cs/misc/2009_aarp_consolidated_financial_statements_12_31_09.pdf, pp. 3-9.

[11] AARP Inc., 2010 Consolidated Financial Statements, http://www.aarp.org/content/dam/aarp/about_aarp/annual_reports/2010_aarp_consolidated_financial_statements_12_31_10.pdf, pp. 3-9.

[12] AARP Inc., 2011 Consolidated Financial Statements.

[13] Fortune 500, Health Care: Insurance and Managed Care, May 23, 2011, http://money.cnn.com/magazines/fortune/fortune500/2011/industries/223/index.html.

[14] Ibid.

[15] Gary Cohn and Darrell Preston, “AARP’s Stealth Fees Often Sting Seniors With Costlier Insurance,” Bloomberg December 4, 2008,  http://www.bloomberg.com/apps/news?pid=newsarchive&refer=&sid=a4OkPQIPF6Kg.

[16] Letter from Senate Finance Committee Ranking Member Chuck Grassley to AARP CEO William Novelli, November 3, 2008, http://www.grassley.senate.gov/news/upload/110320081.pdf.

[17] Robert Pear, “AARP Orders Investigation Concerning Its Marketing,” New York Times November 18, 2008,   http://www.nytimes.com/2008/11/19/us/19insure.html?_r=1.

[18] Emily Berry, “United Stops Selling AARP Limited-Benefit Insurance,” Amednews.com May 28, 2009,  http://www.ama-assn.org/amednews/2009/05/25/bisd0528.htm.

[19] Behind the Veil: The AARP America Doesn’t Know.

[20] Letter from House Ways and Means Committee Members Wally Herger, Charles Boustany, and Dave Reichert to Internal Revenue Service Commissioner Douglas Shulman, December 21, 2011,  http://waysandmeans.house.gov/uploadedfiles/letter_to_irs-shulman_12-15-11.pdf.

[21] Congressional Budget Office, score of H.R. 6079, Repeal of Obamacare Act, July 24, 2012, http://cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf.

[22] Robert Book and Michael Ramlet, What Changes will Health Care Reform Bring to Medicare Advantage Plan Benefits and Enrollment?, Medical Industry Leadership Institute- Carlson School of Management, October 2011, http://americanactionforum.org/sites/default/files/Embargoed_Book+Ramlet_MILI-Working-Paper_2011-10-13_Final.pdf.

[23] Behind the Veil: The AARP America Doesn’t Know, Table 4, p. 16.

[24] The Moment of Truth, report of the National Commission on Fiscal Responsibility and Reform, December 2010,

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf, p. 39.

[25] Restoring America’s Future, report of the Bipartisan Policy Center’s Debt Reduction Tax Force, November 2010, http://bipartisanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011.pdf, pp. 52-53.

[26] Overview of Coburn/Lieberman Medicare reform proposal, June 2011, http://www.coburn.senate.gov/public/index.cfm?a=Files.Serve&File_id=1ea8e116-6d15-46ba-b2e0-731258583305.

[27] White House Fiscal Year 2013 budget submission to Congress, February 2012, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/budget.pdf, p. 35.

[28] Kaiser Family Foundation, “Medigap Reforms: Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” July 2011, http://www.kff.org/medicare/upload/8208.pdf, p. 8.

[29] Ibid.

[30] Ibid., Exhibit 2, p. 6.

[31] “AARP’s Stealth Fees Often Sting Seniors With Costlier Insurance.”

[32] Behind the Veil: The AARP America Doesn’t Know.

[33] Kaiser Family Foundation, “Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” Exhibit 2, p. 6.

[34] Behind the Veil: The AARP America Doesn’t Know, Table 2, p. 9.

[35] AARP Inc., 2011 Consolidated Financial Statements, p. 3.

[36] AARP Press Release, “AARP to Super Committee: Don’t Cut Medicare, Social Security Benefits,” October 19, 2011, http://www.aarp.org/about-aarp/press-center/info-10-2011/aarp-to-super-committee-dont-cut-medicare-social-security-benefits.html.

[37] Carol Costello, “150,000 Seniors In Revolt,” CNN American Morning January 6, 2010, http://www.cnn.com/video/?/video/politics/2010/01/06/costello.aarp.health.care.cnn.

[38] AARP Press Release, “AARP Thanks Senate for Passing Health Care Reform,” December 24, 2009,  http://www.aarp.org/about-aarp/press-center/info-03-2010/aarp_thanks_senateforpassinghealthcarereform.html.

[39] New York State Department of Financial Services, list of insurers offering Medicare supplemental coverage, http://www.dfs.ny.gov/insurance/caremain.htm#insurer.

[40] House Tri-Committee Health Reform Discussion Draft, June 19, 2009, http://democrats.energycommerce.house.gov/Press_111/20090619/healthcarereform_discussiondraft.pdf, p. 358.

[41] Susan Jaffe, “Medigap Supplemental Coverage Can Be Too Pricey for Younger Medicare Beneficiaries,” Kaiser Health News March 7, 2011,  http://www.washingtonpost.com/wp-dyn/content/article/2011/03/07/AR2011030703978.html.

[42] Congressional Budget Office, preliminary estimate of House Tri-Committee Health Reform Discussion Draft, July 7, 2009, http://democrats.energycommerce.house.gov/Press_111/20090708/cbomedicare.pdf, p. 4.

[43] Letter from AARP Chief Operating Officer Thomas Nelson to Rep. Dave Reichert, November 2, 2009, p. 4.

[44] Karl Rove, “ObamaCare Rewards Friends, Punishes Enemies,” Wall Street Journal January 6, 2011, http://online.wsj.com/article/SB10001424052748704405704576063892468779556.html.

[45] House Energy and Commerce Subcommittee on Health hearing, “Prescription Drug Price Inflation: Are Prices Rising Too Fast?” December 8, 2009, http://energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=7588.

[46] AARP Press Release, “AARP Endorses Affordable Health Care for America Act,” November 5, 2009, http://www.aarp.org/about-aarp/press-center/info-11-2009/affordable_health_care_act_endorsement.html.

[47] Letter to the Editor, Wall Street Journal, by AARP President Lee Hammond, January 11, 2011, http://www.aarp.org/about-aarp/press-center/info-01-2011/aarp_letter_to_theeditor.html.

[48] House Energy and Commerce Committee, investigation into closed-door Obamacare negotiations, supplemental materials for June 8, 2012 memorandum, http://archives.republicans.energycommerce.house.gov/Media/file/PDFs/060812relevantdocsmemoIII.pdf, pp. 63-68.

[49] Ibid., p. 73.

[50] Ibid., p. 79.

[51] Ibid., p. 88.

[52] Jeffrey Young, “New AARP Chief Gave Big to Obama,” The Hill March 12, 2009, http://thehill.com/business-a-lobbying/3963-new-aarp-chief-gave-big-to-obama.

[53] Ibid.

[54] “AARP Leadership Profile: Nancy LeaMond,” http://www.aarp.org/about-aarp/executive-team/info-2009/Nancy_Leamond.html.

[55] “AARP Leadership Profile: Debra Whitman,” http://www.aarp.org/about-aarp/executive-team/debra_whitman/.

[56] “AARP Leadership Profile: Kevin Donnellan,” http://www.aarp.org/about-aarp/executive-team/info-2009/Kevin_Donnellan.html.

[57] “AARP Leadership Profile: Cindy Lewin,” http://www.aarp.org/about-aarp/executive-team/info-2010/cindy_lewin.html.

[58] Michael Muskal, “AARP Ads: Hands Off Social Security and Medicare,” Los Angeles Times September 21, 2011, http://www.standard.net/stories/2011/09/21/aarp-ads-hands-social-security-and-medicare.

[59] Gene Steuerle and Stephanie Rennane, “Social Security and Medicare Taxes and Benefits Over a Lifetime,” Tax Policy Center, June 2011, http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf.

[60] While the Associated Press story from December 30, 2010 has been removed from the AARP website, it can still be found at http://www.cbsnews.com/2100-204_162-7197847.html.

[61] Glenn Kessler, “AARP’s Misleading Ad about Balancing the Budget,” Washington Post June 20, 2011, http://www.washingtonpost.com/blogs/fact-checker/post/aarps-misleading-ad-about-balancing-the-budget/2011/06/17/AGQKRsYH_blog.html.

[62] AARP Press Release, “AARP Launches New TV Ad Calling on Congress to Protect Medicare and Social Security from Harmful Cuts,” June 16, 2011, http://www.aarp.org/about-aarp/press-center/info-06-2011/aarp-launches-new-tv-ad-calling-on-congress-to-protect-medicare-and-social-security-from-harmful-cuts.html.

[63] Section 9014 of the Patient Protection and Affordable Care Act (PPACA) as amended, http://housedocs.house.gov/energycommerce/ppacacon.pdf, pp. 816-18.

[64] AARP Inc., 2010 Internal Revenue Service Form 990, pp. 8-9.

[65] PPACA, Section 9010(h)(3)(C) as amended, p. 815.

[66] AARP Inc., 2011 Consolidated Financial Statements,  p. 3.

[67] PPACA, Section 1001, p. 22.

[68] Section 1882(r)(1) of the Social Security Act, 42 U.S.C. 1395ss(r)(1).

[69] Department of Health and Human Services, Rate Increase Disclosure and Review, Final Rule, Federal Register May 23, 2011, http://www.gpo.gov/fdsys/pkg/FR-2011-05-23/pdf/2011-12631.pdf, pp. 29966-67, 29985.

[70] Department of Health and Human Services, Rate Increase Disclosure and Review, Proposed Rule, Federal Register 23 December 2010, http://www.gpo.gov/fdsys/pkg/FR-2010-12-23/pdf/2010-32143.pdf, pp. 81007, 81009, 81026.

[71] Official HHS Biography of Secretary Kathleen Sebelius, http://www.hhs.gov/secretary/about/biography/index.html.

[72] Remarks by HHS Secretary Kathleen Sebelius at the Democratic National Convention, September 4, 2012, http://dyn.politico.com/printstory.cfm?uuid=CB187143-9624-3760-BC9CC2DBE9C60BD7.

[73] Remarks by the President at the Democratic National Convention, September 6, 2012, http://www.whitehouse.gov/the-press-office/2012/09/07/remarks-president-democratic-national-convention.

[74] Jane Norman, “Sebelius Urges Health Care Insurers to Trim Their Profits,” CQ HealthBeat March 10, 2010, http://www.commonwealthfund.org/Newsletters/Washington-Health-Policy-in-Review/2010/Mar/March-15-2010/Sebelius-Urges-Health-Insurers-to-Trim-Their-Profits.aspx.

[75] “Top Industries: Most Profitable,” 2009 Fortune 500, http://money.cnn.com/magazines/fortune/fortune500/2009/performers/industries/profits/.

[76] HHS Press Release, “HHS Secretary Kathleen Sebelius Urges Wellpoint to Immediately Stop Dropping Coverage for Women with Breast Cancer,” April 23, 2010, http://www.hhs.gov/news/press/2010pres/04/20100423a.html.

[77] Remarks of HHS Secretary Kathleen Sebelius at AARP Orlando@50+ Conference, October 1, 2010, http://www.hhs.gov/secretary/about/speeches/sp20101001.html.

[78] Office of Special Counsel, File No. HA-12-1989 (Kathleen G. Sebelius), September 12, 2012, http://www.osc.gov/documents/hatchact/Hatch%20Act%20Report%20on%20HHS%20Secretary%20Kathleen%20Sebelius.pdf.

[79] HHS News Release, “Momentum Building on Sebelius’ Challenge to Insurers to Ban Rescission Before Law Takes Effect in September,” April 28, 2010, http://www.hhs.gov/news/press/2010pres/04/20100428a.html.

[80] Cited in Dan Eggen, “AARP: Reform Advocate and Insurance Salesman,” Washington Post October 27, 2009,  http://www.washingtonpost.com/wp-dyn/content/article/2009/10/26/AR2009102603392_pf.html.

 

Obamacare’s Future Still Shaky

Judging from much of the media coverage of the Supreme Court’s ruling over the past 24 hours, one would think the law had been given a clean bill of constitutionality by the Court, meaning Obamacare faces smooth sailing from here on in.  But as ESPN’s Lee Corso might say, “Not so fast, my friend!

First, as we pointed out yesterday, part of Obamacare WAS ruled unconstitutional by the Court – and by a 7-2 margin, no less.  That bears worth repeating: Even Justices Elena Kagan – one of President Obama’s appointees, and his former Solicitor General – and Steven Breyer – a former Ted Kennedy staffer – thought Obamacare’s Medicaid expansion was unconstitutionally coercive.  So much for “Are you serious?”

Second, Obamacare faces continued obstacles on numerous fronts, including in the courts:

  1. (More) Constitutional Uncertainty:  Other Obamacare provisions are subject to constitutional litigation.  For instance, the law’s Independent Payment Advisory Board – that bureaucratic spawn so dangerous President Obama is afraid to appoint nominees to it during his re-election campaign – has been challenged as giving unelected and unaccountable officials carte blanche to re-write Medicare policy, thereby usurping the role of Congress.  Former Obama Administration budget chief Peter Orszag thinks IPAB is one of the lynchpins of the law, precisely because it is constitutionally questionable – or, as he put it, “less democratic.”
  2. Legal Uncertainty:  Challenges to other elements of the law – such as its infringements on religious liberty – that had been delayed during the Supreme Court’s consideration will now proceed apace.  Also likely subject to a legal challenge is the Administration’s regulatory ruling indicating that individuals in a federal exchange can receive insurance subsidies – which appears to violate the plain text of the statute.
  3. Funding Uncertainty:  While some implementation funding was included in the law, most of that money has been spent – meaning the Administration has to come back to Congress for more money through the annual appropriations process.   Amidst all the reaction to the Court ruling yesterday, many may have missed the fact that the White House issued a veto threat against an appropriations measure being considered in the House, in part because the appropriations bill restricts funding to the IRS for implementation of Obamacare – including implementation of the health insurance mandate tax.  As a reminder, Obamacare does NOT give HHS mandatory funding to establish a federally-based exchange, which is why the Administration requested more than half a billion dollars in new discretionary funding for a federal exchange in its budget this February.  Given that the federal government is running trillion-dollar deficits, why does anyone think Congress should be favorably inclined to spend billions more implementing a law the Supreme Court has admitted is a constitutional overreach?
  4. State Uncertainty:  Yesterday’s ruling gave states the ability to opt out of the law’s new Medicaid expansion – which according to the Medicare actuary accounts for more than half of the law’s coverage expansions – without giving up their existing Medicaid funding.  States can also decide not to create state-based exchanges, and many have declined to create them.  Even Tom Daschle, President Obama’s once-putative HHS Secretary, admitted that the law is so cumbersome and unwieldy that states are unlikely to be ready for its “Big Bang” in January 2014.  And yesterday’s ruling should not give states any more incentive to implement an unconstitutional law – it may well give them less incentive to do so.
  5. Electoral Uncertainty:  This topic should be self-evident.  However, it does give me the opportunity to point out the conservative justices’ observation in their dissent that “cutting Medicare is unpopular” (page 59).  Which is a delicate way of pointing out that senior citizens may not like the idea that Obamacare uses more than $500 billion in Medicare savings not to improve Medicare’s financial stability, but to create a new entitlement.  And as President Obama likes to say, “Elections have consequences.”
  6. Overall Uncertainty:  Even as the Administration attempts to claim victory and certainty on implementation, the true picture is far from clear:
    • States could opt out of the Medicaid expansion;
    • More states could choose not to create Exchanges;
    • The federal government could lack the resources necessary to create a federal Exchange;
    • Courts could overrule federal bureaucrats’ arbitrary decision, and decide that Obamacare does NOT authorize insurance subsidies to those enrolled in a federal Exchange – thus undermining both the subsidy regime and the employer mandate.

The most important point is this: The American people don’t want this unconstitutional law – and they never have.  To argue that implementation will proceed full-speed ahead – in the face of public opinion, the significant obstacles ahead, and a Supreme Court ruling calling parts of the law unconstitutionally coercive – may strike some as whistling past the graveyard.

Obama’s “Bait and Switch” on the Berwick Nomination

Late on Friday, John McDonough published a blog post in the Boston Globe entitled “Why Berwick Matters.”  He intended to use the posting as a means to attack Republicans – but in reality his revealing comments unwittingly serve as an indictment of Democrats, Obamacare, and Berwick for political gamesmanship over the nomination.

As many of you know, McDonough served as Sen. Kennedy’s point person on health “reform” through his senior post on the HELP Committee during 2009-10.  It is therefore with a strong insider perspective that McDonough’s post included the following bombshell:

It was a thrilling moment when it became clear that Berwick had been selected by President-elect Barack Obama and the new Secretary of Health & Human Services, Tom Daschle, to run the federal Centers for Medicare and Medicaid Services.  Finally, the key U.S. health agency would be headed by a physician thoroughly committed to fundamental quality and system improvement, as well as patient empowerment.  It was a heady — and short-lived — moment.

If you think the reference to HHS Secretary Daschle was a typo, it wasn’t; the piece continues:

In late January 2009, Daschle’s nomination blew up over his unpaid taxes.  Berwick’s nomination — which would have sailed through an easy confirmation in early 2009 — was held aside while a successor was recruited, and then the Administration began looking at other names.  The health reform legislative campaign provided another reason to delay, and so it was not until April, 2010 that the President nominated Berwick.

In other words, the White House intended to have Berwick head CMS all along – but delayed the nomination until AFTER Obamacare passed, because it knew how controversial he was.  What McDonough’s piece elides over is the fact that Daschle’s withdrawn nomination prompted the new Administration to engage in closer scrutiny of its nominees.  It’s likely that Berwick’s history of support for British socialized medicine – including his comments about the NHS being a “seductress” – emerged at that time.  At which point, according to McDonough’s account, the Administration scrapped the idea of nominating Berwick – at least until AFTER Obamacare passed.  All of which raises the question:  If Berwick was so unpopular that the Administration couldn’t bring itself to nominate Berwick in the light of day – i.e., to make a clear statement before Obamacare passed that Berwick would be the one to implement the law – why was ever he nominated at all?

McDonough concludes his blog post by saying that Senate Republicans engaged in “meaningful disrespect” of the nominee, a similar tone to the White House reaction that said “a small group of senators…[were] putting political interests above the best interests of the American people.”  In reality however, McDonough’s account makes clear that the real disrespect was being driven by the Obama Administration, which refused for political reasons to inform the American people before Obamacare’s enactment that the unpopular health care bill would be implemented by an even more unpopular and controversial appointed bureaucrat.

Obamacare and “The Bright Light of Day”

In a post on the White House blog yesterday, OMB Director Lew chided Congress in general, and Republicans in particular, for daring to attach policy riders to appropriations measures currently working their way through Congress.  Of particular note was the sentence in which Lew stated that “ending health care and Wall Street reform are major policy choices that should be made in the bright light of day, and not attached to appropriations bills needed to keep the government operating.”

Seeing as how Director Lew suggested that Republicans are afraid of considering an Obamacare repeal “in the bright light of day,” it’s worth remembering the absurd lengths this Administration and Democrats in Congress went to in order to enact Obamacare in the first place:

  • Candidate Obama repeatedly promised to televise health care negotiations on C-SPAN, “so that people can see who is making arguments on behalf of their constituents, and who are making arguments on behalf of the drug companies or the insurance companies.”  Instead President Obama and Democrats went and drafted their massive 2,700 page law behind closed doors.  Speaker Pelosi took the frequent President’s campaign pledges for transparency so nonchalantly she laughed it off as a joke.
  • The head of the pharmaceutical industry bragged how Administration officials enticed him, and other industry groups, to cut secret agreements to support Obamacare: “We were assured: ‘We need somebody to come in first.  If you come in first, you will have a rock-solid deal.’”  The details of that “rock-solid deal” between the Administration and Big Pharma have STILL not been released publicly.
  • President Obama himself admitted in a January 2010 interview with Diane Sawyer that “amongst supporters…we just don’t know what’s going on” behind closed doors.  He and Democrats promptly re-grouped, drafting new language to pass the bill – behind closed doors.
  • Democrat Members of Congress said they couldn’t be bothered to read the bill – because it was a waste of time, they needed lawyers to read the bill for them, and because “we have to make judgments very fast.”  Democrat leaders admitted that “If every Member pledged to not vote for it if they hadn’t read it in its entirety, I think we would have very few votes.”
  • Speaker Pelosi famously said we had to pass the bill to find out what’s in it – because she apparently believed the American people couldn’t be told its contents in advance.
  • Even as Administration officials were publicly claiming they were “entirely persuaded” that controversial portions of Obamacare were fiscally sustainable, career officials were calling the same program “a recipe for disaster” – evidence that the Administration concealed their knowledge that the law will ultimately be a budget-buster.
  • Following Ted Kennedy’s death, the White House enlisted Democrat allies in the Massachusetts legislature to pass a partisan bill gaming the Commonwealth’s laws and inserting an appointed Senator who would vote to pass Obamacare – the second time in five years Democrats in the Massachusetts legislature changed the laws for partisan gain, because they apparently viewed a United States Senate seat as their party’s personal property.
  • After the voters in Massachusetts told Democrats they had different ideas and elected a Republican to the Senate, Democrats used an arcane procedure to ram through the 2,700 page bill – a procedure even Speaker Pelosi’s staff called a “trick,” and which one expert said utilized parliamentary tactics to overturn the outcome of an election.

Given this dubious history, Republicans will take no lectures on passing measures “in the bright light of day” from this Administration or Democrats in Congress, who passed an unpopular – and constitutionally questionable – law the American people never wanted.

The CLASS Act’s Untold Story

A PDF copy of this report is available on Sen. John Thune’s website.

Introduction

The Patient Protection and Affordable Care Act (PPACA), the Obama administration’s keystone health care legislation, established a new long-term care insurance entitlement known as the Community Living Assistance Services and Supports (CLASS) Act.1 Documents uncovered through a bicameral congressional investigation show that well before the law’s passage, warning flags were raised within the Department of Health and Human Services (HHS) about the CLASS program’s sustainability in the long-term. The documents also describe the extent to which the Administration may shift costs and administrative burdens for the program onto states and employers.

The CLASS Act created an optional, government-backed, long-term care insurance program that would pay a daily or monthly benefit to enrolled subscribers if they become unable to perform activities of daily living, such as dressing, meal preparation, and personal grooming. Because the program requires a five-year vesting period before subscribers can collect any benefits, the Congressional Budget Office (CBO) calculated that in the first 10 years of the program, the CLASS Act would account for $70 billion in deficit reduction. This calculation was based on the premise that during the initial years of the program, it will take in more revenue in premiums than it pays out in benefits, including the first five years of the program in which no benefits are paid at all.

This $70 billion in CBO-scored “savings” was crucial to garnering support for passage of the health care law. CBO did not make public any estimates on what would happen as the population of subscribers to the program age and the CLASS Act requires increasing amounts of money to be paid out in benefits.

It is now widely acknowledged that the alleged savings from the CLASS Act are illusory. The month after PPACA passed, Rick Foster, Chief Actuary of HHS’ Centers for Medicare and Medicaid Services (CMS), released a report indicating that the CLASS Act was not fiscally sound.2 The chief actuary is a non-partisan, high-ranking official in CMS whose estimates are critical in understanding current health care law and proposed changes to the law.

Senate Budget Committee Chairman Kent Conrad, a supporter of the PPACA legislation, publicly called the CLASS program “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would be proud of.”3 In testimony before Congress, HHS Secretary Kathleen Sebelius conceded that the CLASS program is “totally unsustainable” in its current form.4

But these concessions came long after PPACA had been signed into law. As a result of this investigation, it is now clear that some officials inside HHS warned for months before passage that the CLASS program would be a fiscal disaster. Within HHS the program was repeatedly referred to as “a recipe for disaster” with “terminal problems.” As this report will show, the chief actuary stated on numerous occasions that the program was not fiscally sustainable and would result in what he referred to as an “insurance death spiral.”

According to emails and other documents obtained pursuant to this investigation, senior leadership of HHS and Democratic staff in the Senate and House reviewed these warnings but did not change the law and did not inform the public of the doubts about the CLASS Act. Instead, the officials continued to claim that the program would be sound, sustainable, and actually produce budget savings that could help pay for other parts of the health care law.

While there has been little public discussion of the costs PPACA imposes on employers and states, this investigation revealed for the first time the extent to which HHS both anticipated these costs and yet tried to impose even more burdens. The documents we have obtained demonstrate that officials at HHS knew that the CLASS Act would saddle employers and states with, at minimum, a heavy administrative burden. The emails also reveal discussions inside HHS about combating low participation in the program by requiring employers to participate. HHS anticipated this mandate could be imposed at some future date, and it is possible they will still attempt to impose such a mandate through regulation.

The documents that were produced as part of this investigation were reviewed and analyzed by a working group of Republicans in both houses of Congress. This report is the product of our joint investigatory research and analysis.

Internal HHS Documents Questioned Fiscal Viability of CLASS

While PPACA established the long-term care program, it left many of the important details about the CLASS Act to be decided by HHS through regulation. HHS is required to issue those regulations by October 1, 2012. Until HHS issues those regulations, the public does not know how much subscribers will have to pay in premiums to enroll in the program, what benefits they will receive if they become disabled, or what level of disability will trigger the benefits.

When balancing premiums collected against benefits paid, internal HHS documents show that regulators have long been concerned about the problem of “adverse selection.” If CLASS suffers from adverse selection (also called “anti-selection”), a high proportion of people with long-term care needs enroll in the program and initial premiums will need to be very high to cover costs. Those high premiums will encourage healthy people to drop out of the program, causing premiums to rise again for the sicker individuals who remain. This could result in what is called a premium “death spiral” and massive taxpayer losses.

Internal emails from HHS and CMS show a number of officials raised alarm about the sustainability of the CLASS Act program. Between May and September of 2009, the CMS chief actuary repeatedly stated his concerns to CMS leadership. It appears from the documents that he was later cut out of the discussions regarding the CLASS Act. CMS and Democratic staff on the Senate Committee on Health, Education, Labor and Pensions (HELP) instead turned to CBO, which produced more favorable estimates than the chief actuary. But others within HHS continued to question the viability of the CLASS Act. What follows is a timeline of how these discussions progressed.

May 2009
The Chief Actuary Predicted “Insurance Death Spiral”

The CMS chief actuary first analyzed the adverse selection problem in a May 19, 2009, email. (See Exhibit A.) Commenting on a draft legislative proposal from Senator Kennedy’s office, the chief actuary said, “let me offer a few preliminary comments:

I didn’t see any provision for a Federal subsidy of this program; in other words, the intention appears to be that it would be financed solely through participant premiums and interest earnings. Nonsubsidized, voluntary insurance programs generally involve substantial “antiselection” by those who choose to participate. As summarized below, this could be a terminal problem for this proposal.5

The program is intended to be “actuarially sound,” but at first glance this goal may be impossible. Due to the limited scope of the insurance coverage, the voluntary CLASS plan would probably not attract many participants other than individuals who already meet the criteria to qualify as beneficiaries. While the 5-year “vesting period” would allow the fund to accumulate a modest level of assets, all such assets could be used just to meet benefit payments due in the first few months of the 6th year.

The resulting substantial premium increases required to prevent fund exhaustion would likely reduce the number of participants, and a classic “assessment spiral” or “insurance death spiral” would ensue.

Alternatively, suppose that a significant number of people without any limitations in [activities of daily living] could be persuaded to participate in the program. How many people would be needed to cover the benefit costs for those qualifying as beneficiaries? For the sake of illustration, suppose 10 million people qualify for benefits of $50 per day (annual cost of $182.5 billion). About 234 million people, paying premiums of $65 per month, would be needed to cover this cost (ignoring administrative expenses). The size of the U.S. population aged 20 and over is about 225 million, and about 165 million of these are employed. This rough—but probably not unrealistic—example further calls into question the feasibility of the maximum financing versus the minimum benefits.

The problem identified by chief actuary at the earliest stages of the bill’s consideration remained in the legislation through subsequent drafts. The chief actuary’s concern was that it would not be possible to attract enough people to the program to maintain it as a self-funding program.

The chief actuary’s email does not include the text of the draft language from Senator Kennedy’s office, but it appears from the premium and benefit example used that the first draft of the statutory language may have required $50 a day in benefits and/or premiums of $65 per month. The final version of the CLASS Act gives the Secretary of HHS discretion to set the premiums and benefit levels as long as premiums allow the program to be fiscally sound over 75 years and benefits are at least $50 per day.

June – July 2009
The Administration Supported the CLASS Act Based on Budgetary Gimmicks, Not Long-Term Actuarial Analysis

In the summer of 2009, a series of email exchanges between the chief actuary and the CMS Office of Legislative Affairs show that support for the long-term care program was growing within the Obama administration and among Democrats in Congress, while the chief actuary’s concerns were becoming more emphatic. Despite these concerns,
supporters of the CLASS Act continued to rely on budgetary gimmicks and flawed modeling.

On June 29th, a staffer in the CMS Office of Legislative Affairs forwarded a news story to the chief actuary that discussed how the CLASS Act allegedly would save money. The email noted, “Bottom line, the CLASS Act was scored by CBO with a savings of $58 billion over 10 years, including a $2.5 billion savings in Medicaid.” A follow up email from CMS Legislative Affairs on July 8 said, “the Administration is now officially on record supporting the CLASS Act.” (See Exhibit B.)

The chief actuary responded with a critique of two studies that had been offered in support of the insurance program:

I’ve finished reviewing the two studies provided by Sen. Kennedy’s staff regarding the CLASS proposal. I’m sorry to report that I remain very doubtful that this proposal is sustainable at the specified premium and benefit amounts.

The actuarial study conducted for AARP assumed participation rates based on a portion (40% to 100%) of current rates for 401(k) plans. In practice, I think current experience for participation in employer based long-term care plans would be much more applicable, and such participation is far lower than for 401(k)’s (for fairly obvious reasons). The AARP study emphasized the sensitivity of premium levels to the number of healthy participants. Although the actuaries didn’t model a plan with participation in the few-percentage range, I strongly suspect that the resulting premiums would be so large as to further diminish the number of participants and to fail to achieve the critical mass of participants in average health needed to cover the selection and subsidy costs.

All the analysis in the Moran study is based on an assumption that the CLASS program would be mandatory. The results look legitimate for such a program, but they are not applicable to the voluntary plan proposed for CLASS.

I haven’t been able to talk to CBO yet regarding their participation assumptions. Unless they have a compelling reason to expect greater-than-[long-term care] levels of participation, however, I can’t see how there would be enough workers participating to cover the selection costs for those with existing [activities of daily living] limitations plus the costs for the internal subsidies for students and low-income persons. Thirty-six years of actuarial experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue. (See Exhibit B.)

The comments by the chief actuary demonstrate that any reduction in the federal budget deficit identified by CBO would be a function of budgetary time-shifting rather than true savings. While programs like Social Security are often analyzed on a 75-year basis of long-term actuarial solvency, congressional rules require CBO to analyze legislative proposals, like the CLASS Act, over a 10-year budget window.

But the CLASS program likely will not even begin collecting premiums until 2013, and five years of participation are required before subscribers are vested in CLASS, so the program is not likely to begin paying out any benefits until 2018. CLASS was therefore scored as a revenue raiser. Using this budget gimmick, the true costs of the program— the subsequent benefit payments—were essentially ignored, because only a few years of benefit payments were within the official 10-year CBO scoring window of 2010-2019.

CLASS Supporters Relied on Flawed Modeling

The internal documents show that advocates of the CLASS program relied on strikingly unrealistic participation estimates. One study noted above, commissioned by AARP and dated March 3, 2008, assumed nearly 50 million Americans would join the program, a level well above current participation in private long-term care insurance. The second, by the Moran Group, assumed participation would be mandatory for everyone.6

As the chief actuary pointed out, those are completely invalid assumptions on which to base estimates of a long-term care insurance program. CBO’s own estimate also assumed participation rates that were higher than long-term care insurance currently has, and higher than the chief actuary believed could plausibly be expected. By relying on unrealistic estimates of how many people would participate in the CLASS program, its supporters masked the program’s underlying viability problems.

Even with these unrealistic assumptions, the AARP-commissioned analysis also concluded that the program’s design flaws “will ultimately lead to … an unsustainable situation with respect to the premiums.” (See Exhibit C.) Emails between Obama administration officials and congressional staff show that AARP, which publicly supported PPACA, has refused to release the entire study. (See Exhibit D.)

To further rebut the AARP and Moran studies, the chief actuary also forwarded to CMS Legislative Affairs staff a report by the American Academy of Actuaries and the Society of Actuaries that substantiated his concerns about the long-term viability of the proposed CLASS program. (See Exhibit E.) The American Academy of Actuaries provided their report to the Senate HELP Committee on July 22, 2009. (See Exhibit E.)

August – September 2009
CMS and Senate HELP Democrats Ignored Warnings about Actuarial Soundness and Pressed Forward with CLASS as a New Entitlement

The chief actuary remained concerned about the soundness of the CLASS program throughout the summer of 2009, and he sought to ensure that his concerns were communicated to the senior people working on health care reform inside HHS as well as the chief architects of the program in Senator Kennedy’s office. On August 14, 2009, the chief actuary sent another email to the CMS Office of Legislative Affairs in which he said:

As you know, I continue to be convinced that the CLASS proposal is not ‘actuarially sound,’ despite Sen. Kennedy’s staff’s good intentions. I assume you’ve conveyed these concerns to the staff but, if not, let me know and we can express the concerns in a memo.

The Office of Legislative Affairs responded, “Yes, both Amy and the HHS Office of Health Reform have been in communication with [a senior democrat staff member] of the HELP Committee relaying your concerns about the actuarial soundness of the CLASS Act.” (See Exhibit F.)

A few weeks later, on August 24, 2009, the chief actuary again asked CMS to consider the American Academy of Actuaries report questioning the CLASS Act’s viability. (See Exhibit B.)

HHS Officials Effectively Silenced the Chief Actuary and Stopped Soliciting His Input

After receiving consistent negative information from the chief actuary about the financial viability of the program, Senator Kennedy’s staff moved to cut out the chief critic of the CLASS Act within HHS from providing any further analysis of the bill. On September 10, 2009, the Director of Policy Analysis in the Immediate Office of the Secretary of HHS emailed the Deputy Assistant Secretary for Planning and Evaluation saying, [a senior democrat staff member] “got back to me, and decided she does not think she needs additional work on the actuarial side.” (See Exhibit G.)

An email the following week, September 16, reiterated Democrats’ position: [a senior democrat staff member] “at HELP has done a lot of work changing the program and per CBO it is now actuarially sound.” (See Exhibit H.) There had been a clear shift from relying on the chief actuary’s 36 years of experience in favor of the flawed 10-year timeframe of CBO.

Despite the shift, the chief actuary continued to be involved in discussions as late as September 23, 2009, when he attended a meeting with CBO in which the structure and cost of the CLASS Act were discussed. (See Exhibit I.) After this date, there were apparently no other email communications from the chief actuary regarding the CLASS Act. There is no indication in the documents that the drafters of the legislation in Congress or HHS ever again sought the chief actuary’s opinion on the program before the law was enacted. However, his questions about the sustainability of the program continued to be raised in published actuarial reports.7

CBO Produced Long-Term Analyses of CLASS; Models Have Yet to Be Made Public

At the same time CLASS supporters began to marginalize the warnings from the chief actuary about the long-term viability of the program, Democratic staff on the Senate HELP Committee worked with CBO to come up with an alternative model to analyze CLASS. On September 9, 2009, an HHS official e-mailed that HELP staff “had CBO do lots and lots of runs out to 50 years to ascertain solvency. [The HELP staff member] is going to send to me to forward on.” (See Exhibit J.)

Congress relies on CBO to estimate the economic impact of proposed laws and in this role it is vital that CBO’s models be completely transparent. The formulas, algorithms and assumptions should be explicitly defined so that Congress and the public can fully understand the basis for their estimates. Yet two years after it was providing analyses to HELP Committee staff, CBO has declined to disclose the models it developed to analyze the CLASS program’s long-term solvency. CBO staff now say that they do not have the capacity to analyze the CLASS Act’s long-term solvency, despite apparently undertaking that analysis for congressional Democrats before the bill’s passage.

On August 15, 2011, HHS did provide an analysis by CBO that congressional staff gave to CMS in September 2009. That analysis is one page of a spreadsheet projecting net premium collections of $59 billion through 2019 – a 10-year budget estimate, not the 50-year solvency estimates referred to by Senate HELP Committee staff. The document does not disclose what participation rates it assumed or how it established the assumed $65 premium rate. (See Exhibit K.)

September – December 2009
HHS’ Office of the Assistant Secretary for Planning and Evaluation Began To Question CLASS but Also Was Ignored

Despite the chief actuary’s email silence after September, others within HHS began to raise red flags about the soundness of the CLASS program. On September 25, 2009, just two days after the CBO meeting with the chief actuary, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) prepared talking points for the CLASS program, including the concern that the program “is still likely to create severe adverse selection problems.” (See Exhibit L.)

On October 22, 2009, ASPE again questioned the viability of the program. One staffer wrote in an email:

You can get a policy through the [Federal Long-Term Care Insurance Program] (albeit underwritten) with a higher benefit, better inflation protection, and lower premium [than CLASS]. I don’t see any reason why anyone would opt for CLASS if they could pass the underwriting. And if you couldn’t make it through underwriting, you could simply enroll in CLASS to cover some of your current or likely future [long-term care] costs. Seems like a recipe for disaster to me… (See Exhibit M.)

This staffer also said: “I can’t imagine that CLASS would not have high levels of adverse selection given the significantly higher premiums compared to similar policies in the private market.” (See Exhibit M.)

HHS Officials’ Public and Private Statements on CLASS Solvency Conflict

During this entire time, public statements by HHS officials gave no hint of the internal concerns voiced within the agency. On October 20, 2009, Richard Frank, Deputy Assistant Secretary for Planning and Evaluation at HHS, gave a public speech at a Kaiser Family Foundation event in which he said:

We’ve, in the department, have modeled this extensively, perhaps more extensively than anybody would want to hear about [laughter] and we’re entirely persuaded that reasonable premiums, solid participation rates, and financial solvency over the 75-year period can be maintained. So it is, on this basis, that the administration supports it that the bill continues to sort of meet the standards of being able to stand on its own financial feet.8

It was around this same time that internal email from Frank’s staff indicated the nonpublic opinion that prospects for the program’s solvency looked more like “a recipe for disaster.”

Figures from the Social Security Chief Actuary Also Lead to Questions of Anti-Selection Problems within CLASS

HHS staff acknowledged that CLASS premiums would need to be less than $100 for the program to be viable. On November 27, 2009, an ASPE staffer commented, “I suspect that these changes would decrease the premium to well under $100, which seems to be the consensus threshold needed to get decent participation and avoid catastrophic adverse selection.” (See Exhibit N.)

But on December 8, ASPE analyzed Social Security Chief Actuary Steve Goss’ actuarial report and noted that estimated monthly premiums were approximately $177 per month (if a certain reenrollment loophole were not closed) or $140 per month (if the loophole were closed). They also noted that after five years, premiums could increase to $332.53 per month. The office concluded its analysis by noting that adverse selection was a serious threat to the program’s viability. (See Exhibit O.)

HHS Officials Question CLASS, but Their Concerns are not Addressed in the Legislation

On December 1, 2009, ASPE had prepared technical comments on the CLASS Act, in which, even before its analysis of the Social Security data, the Office pointed out:

Unlike most private insurance that reimburses policy holders for long-term care expenses, the CLASS benefit is a lifetime cash payment paid daily or weekly once a person meets the eligibility criteria of the program. … The end result could be severe adverse selection that would in turn threaten the long-run solvency of the program. (See Exhibit P.)

The technical comments also included several recommendations from the American Academy of Actuaries to increase the solvency of the program. These included adding a waiting period before benefits kick in; reducing the benefit from lifetime to a fixed number of years; using an established list of activities of daily living to determine the trigger for benefits; and moving from a daily cash benefit to one that makes reimbursements based on services used.

None of those recommendations were adopted in the final language of the bill, and the concerns expressed by ASPE were not addressed or shared with the public.

January 2010
HHS Officials Privately Conceded CLASS May Be Unsustainable, but Failed to Disclose Their Concerns Publicly

In January 2010, HHS staff prepared a list of suggested technical corrections to the CLASS Act that the Department wanted included as the House and Senate reconciled their separate versions of health care reform. However, for both political and procedural reasons, the House was forced to accept the version of health reform – and the CLASS Act – adopted by the Senate on December 24, 2009, and none of the corrections were made.

Chief among the corrections the Department wanted to make was a so-called “failsafe,” which HHS staff described this way:

In the current bills, the Secretary can alter the premiums in response to threats to financial stability of the CLASS program. However, it is possible the authority in the bill to modify premiums will not be sufficient to ensure the program is sustainable. The failsafe provision gives the Secretary authority to alter earnings and vesting provisions of the CLASS Act to further decrease adverse selection and maintain long-run stability. (See Exhibit Q.)

The documents reveal HHS’ concern that the CLASS program as written in the Senate bill – and the version signed into law – would become fiscally unsustainable. Yet at no point between the date of the document – January 4, 2010 – and the day the House voted to pass the Senate health bill – March 21, 2010 – did Secretary Sebelius or any other HHS official publicly air the Department’s concerns that the CLASS program as drafted could be unsustainable.

It appears that the significant fiscal concerns surrounding CLASS may have been silenced within the Department for political reasons and the fear that publicly discussing concerns about CLASS’ sustainability could have jeopardized the bill’s passage in the House.

The technical comments on the January 2010 document raise additional contradictions between HHS’ public and private statements. Throughout 2011, Secretary Sebelius and other HHS officials have repeatedly expressed – and have testified before Congress about – their belief that the CLASS Act legislation gives them the authority they need to construct the program in a fiscally sustainable manner.9 This public assurance stands in marked contrast with the internal corrections document asserting that it is possible the Department’s authority “will not be sufficient to ensure the program is sustainable.”

CLASS May Leave Employers On the Hook for a Failed Entitlement

Even before PPACA became law, HHS and the law’s drafters began to look for ways to pass the costs on to other parties. While it was clear that some of the future projected shortfalls in the program would add to the federal budget deficit and be borne by American taxpayers, other costs would be shifted to employers and the states. The documents show a consistent effort by HHS to impose unfunded mandates on others, so that the cost of some of the questionable decisions made by the law’s drafters would not fall on the federal government.

Employer Participation Creates Compliance and Administrative Burdens

To participate in CLASS, subscribers would pay a yet-to-be-determined premium each month that would be deposited into a trust fund established by the Secretary of the Treasury for the purpose of paying cash benefits to eligible claims. Premiums would be collected either through voluntary employer payroll withholding or by a mechanism determined by the Secretary for those who are self-employed, have more than one employer, or have an employer that does not participate in the automatic enrollment process.

The critical mechanics of how an employer would withhold CLASS program premiums from employees’ paychecks and then transfer those premiums to the U.S. Treasury could place a significant compliance and administrative burden on employers. The complexity and cost of any new payroll deduction and enrollment process could be substantial, especially for small employers.

Documents show that HHS knew of the program’s administrative burden on employers and pressed forward anyway. In the HHS ASPE office’s technical comments on the draft CLASS Act legislation from December 1, 2009, the Department acknowledged:

The collection of premiums is a fiduciary responsibility that requires employers to accurately collect and transmit premiums to the government. Collecting premiums would require a nontrivial change to existing payroll systems and additional responsibilities that employers may be reluctant to take on. (See Exhibit P.)

HHS warned that employer participation in a voluntary enrollment program was likely to be low because CLASS premiums will be difficult for employers to calculate and “employee interest in CLASS may be minimal.” (See Exhibit P.)

What was more, because employers participating in the program would be taking on a fiduciary responsibility, they could be at risk of lawsuits from their workers for calculating premiums incorrectly. Because, as HHS acknowledged, calculating premiums will be “complex” and difficult to implement, such lawsuits could become commonplace. HHS appears to have understood that the prospect of litigation and significant liability might make employers less likely to want to get involved in the program.

The Forthcoming Regulations on CLASS Could Require Employers, at a Minimum, to Provide Enrollment Information

In December 2009, HHS staff discussed how to use the regulatory process to change the not-yet-passed CLASS Act in a way that would make it even more burdensome for employers. Staff were concerned that low participation by employers would lead to fewer people signing up for the program.

One email chain included a discussion about requiring employers to play a more active part in enrollment by requiring them to issue enrollment forms to employees.

A major enrollment issue that needs to be addressed is how to identify the relevant employers/employees (i.e., the self-employed, small employers, and large employers), and determine if statutory requirements are being met. The Department of Labor may be of some assistance. (See Exhibit R.)

Another email from the same month indicates that HHS tried to make last minute changes to a manager’s amendment, though the language never made it into the final version of the amendment. The Deputy Assistant Secretary for Planning and Evaluation suggested:

Employer requirements: In the current formulation of the bill, employers have complete discretion regarding whether to participate in the CLASS program and auto-enroll employees …. The provision introduced in this amendment maintains the original optional participation in autoenrollment, but adds a requirement that employers inform their employees about the CLASS program. (See Exhibit S.)

Nothing in the documents suggests that the Obama administration ever conducted an analysis to quantify how much these proposed unfunded mandates would cost employers in time and resources.

The Administration Considers New Mandates on Employers as a “Solution” to Low Participation

The concern inside HHS about potentially low participation by employers led to an even more burdensome suggestion: mandate that employers over a certain size offer enrollment to employees. As HHS explained, “One possible alternative is to move to a ‘mandated offer’ approach where employers over a certain size (e.g., 50 employees) would be required to offer enrollment.” (See Exhibit P.)

Documents show that the idea that the Administration should solve its participation problem by requiring employers to offer enrollment to employees continued to be a major theme of communications regarding implementation of the program. On December 11, 2009, a staffer in ASPE commented:

I am writing right now about whether we should integrate employers even more into the process by moving to a ‘mandated offer’ approach instead of just ‘mandated information.’ The major problem is that mandating that employers offer information about the program probably will not yield high enough participation; we need to have employers more integrated into the enrollment process and not have them drop off once they simply provide information about the program. (See Exhibit T.)

The recipient of that email responded:

I agree that there is a risk to the entire program if we don’t have a sufficiently robust outreach and educational campaign and one that is specifically targeted to employers. This employer notification mandate makes me think of Part D, whereby … insurers are required to notify their Medicare eligibles whether their prescription drug coverage is creditable. (See Exhibit T.)

In numerous other emails, HHS staff argued that employers should bear the responsibility to enroll employees. (See Exhibit R.) HHS envisioned this requirement increasing participation in the program, but the documents do not discuss the unfunded mandate that would be imposed on employers. The final version of the CLASS Act is silent on employer requirements, but it is entirely within the HHS Secretary’s discretion to impose the obligations on employers when she issues regulations for the program this fall.

Even if the Secretary does not require employer participation in the regulations to be released this fall, the email communications discussing mandatory employer participation and employer fiduciary responsibility foreshadow ways HHS could later modify the CLASS Act in a desperate attempt to make the program solvent.

CLASS Saddles States With Yet Another Mandate

In addition to the burdens placed on employers, the emails indicate that HHS believed many costs of implementation will be shouldered by the states.

HHS Knew CLASS Imposed Heavy Administrative Burdens and Unrealistic Deadlines

States will have a significant administrative role in the implementation of the CLASS program, including responsibility for establishing and helping to administer eligibility determination centers. For example, the CLASS Act requires the Secretary of HHS to establish an Eligibility Assessment System similar to the Social Security Disability Insurance (SSDI) program, to be administered by the states. That system is to be completed by January 1, 2012. The CLASS Act also requires the HHS Secretary to enter into agreements with each state’s Protection and Advocacy System, which advocate for people with disabilities, and with other groups and state agencies to provide additional counseling services.

According to several internal emails, HHS and CMS staff noted the unreasonable burdens the legislation would impose on states by requiring implementation of the Act within two years. On April 19, 2010, one email said that requiring states within two years of enactment to “designate or create entities to serve as fiscal agents for CLASS beneficiaries” would “create significant new burdens on the states.” (See Exhibit U.)

Another email from even earlier, December 18, 2009, also warned of this problem, stating that a two year deadline for states “to build the direct care workforce capacity for CLASS enrollees” is “flawed (and perhaps fatally so).” (See Exhibit V.)

HHS Underestimated Administrative Costs, Leaving States to Bear Costs of Eligibility Determinations

Even if the deadlines can be met, HHS has not released any specific estimates of how much these implementation efforts will cost or how much money the federal government will be able to offer states to help pay for the services versus how much states will have to pay on their own.

It is clear from internal HHS emails that the Department always planned to impose a number of significant administrative burdens on states. The administrative costs are expected to be significant, and HHS officials pointed out several times that cost estimates of the CLASS Act did not allocate enough money to administer the program. CLASS Act estimates only allocated three percent of premiums to run the program, while the American Academy of Actuaries recommended three percent of premiums plus five percent of benefits. (See Exhibit P and Exhibit W.)

Rather than address inadequate funding for administrative expenses, the CLASS Act imposes many administrative expenses on already-struggling states. On March 3, 2010,
when asked whether CMS analyzed implementation costs for CLASS, one CMS employee responded:

“Hate to tell you but I am almost certain that we did not do this. I really thin[k] most of the administrative costs would be in doing eligibility determinations and payments split with nursing homes and waivers, however, I think little of it is really ours versus the states.” (See Exhibit X.)

CMS Knew States Would Be Saddled With Costs But Congress Did Not Make Changes during Reconciliation

In the last few weeks before final passage of PPACA, CMS’ Office of Legislative Affairs asked staff for edits to the Senate bill that CMS deemed absolutely necessary in order to implement the Act. In a March 4, 2010, exchange, CMS specifically asked for “Not ‘nice to have’ but ‘otherwise it won’t work’” fixes. One edit provided by staff read, “require the Secretary to assume responsibility for building workforce infrastructure; otherwise, this will impose costs and burdens on states and potentially put CLASS at risk.”

CMS proposed changing the implementation date to January 2015, as “states are not uniformly equipped to perform activities related to designating existing or new entities to ensure the service infrastructure is adequate to meet the needs of beneficiaries, which will likely pose significant and potentially costly administrative challenges, particularly in light of the implementation deadline.” (See Exhibit Y.) None of these edits were included in the final version of PPACA.

Administrative Burden Likely to Get Worse Over Time

The SSDI program, on which the CLASS Act administrative structure is modeled, is experiencing significant problems in both fiscal and administrative areas. The aging of the baby boom generation has caused SSDI administrative costs to nearly double since 2000. According to a CBO report, the SSDI program will become insolvent in 2017.10 In addition, the Social Security Administration anticipates nearly 3.2 million new applicants11 for disability benefits in FY 2012. Even without those new applicants, SSDI has a huge backlog of appeals cases in which benefits have been denied. In 2007, some appeal cases had been lingering as long as 1,400 days.12

Conditions are so unstable that the Government Accountability Office (GAO) has placed federal disability programs on a High-Risk Watch List since 2003. According to GAO, “the largest disability programs – managed by the Social Security Administration, Department of Veterans Affairs, and Department of Defense – are experiencing growing workloads, creating challenges to making timely and accurate decisions.”13

As baby boomers start claiming CLASS Act benefits, program administrators can expect to see some of the problems of scale already being experienced by other federal disability programs, including rising administrative costs. However, the statute caps the program’s administrative expenses at three percent of premiums, leaving no wiggle room for states to accommodate the increased burden from an aging population. Without sufficient capital and stability from the start, it is likely the CLASS program will eventually join the other programs on GAO’s High-Risk Watch List.

The cost of administering the SSDI program state centers in 2011 was $3 billion, a cost borne exclusively by the states.14
The burdens of CLASS implementation on the states are likely to exceed that amount, because the number of CLASS beneficiaries will be significantly larger than the number of SSDI beneficiaries due to more relaxed eligibility requirements under CLASS. While HHS has not shared estimates on the costs to states to administer the CLASS Act, we feel that $3 billion per year is a conservative estimate, one that excludes additional expected start-up costs. Over the next ten years, states will be forced to bear at least $30 billion dollars for implementation of CLASS. When added on top of the mandates from the Medicaid requirements in PPACA of at least $118 billion, it is clear that states are being forced to pay the bills that Washington refuses to pay.

State Officials and Legislators Have Grave Concerns with the Solvency and Sustainability of the CLASS Act

On August 4, 2011, leaders of a key National Conference of Insurance Legislators (NCOIL) Committee expressed “grave concerns” with the CLASS Act in a letter to the HHS Secretary. The NCOIL letter asserts that the CLASS Act program “fails to apply the principles of risk management that are essential to any financially sound insurance program”. The letter went on to state, “The CLASS program risks being undercapitalized on the front end, paying more in benefits than it collects in premiums. This will drive rates up and cause adverse selection, as young and healthy consumers will not participate in the market. Also, the plan as currently configured offers little incentive for agents, brokers, and human resources professionals to encourage the enrollment needed to create a broad and stable risk pool.”15

The concerns of state legislators should be strongly heeded by HHS. Not only do states recognize that they will be on the hook for administering of the CLASS program, legislators whose policy expertise is in insurance markets recognize it is destined for failure at the expense of states, businesses, and taxpayers.

 

NOTES

1 P.L. 111-148; P.L. 111-152

2 Foster, Richard. “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act’ As Amended.” Office of the Actuary, Centers for Medicare and Medicaid Services, April 22, 2010. https://www.cms.gov/ActuarialStudies/Downloads/PPACA_2010-04-22.pdf

3 Montgomery, Lori “Proposed Long-Term Insurance Program Raises Questions.” Washington Post, October 27, 2009. http://www.washingtonpost.com/wp-dyn/content/article/2009/10/27/AR2009102701417.html

4 Roy, Avik. “Sebelius: CLASS Act is ‘Totally Unsustainable,’ Mandate Possible,” Forbes, February, 23, 2011. http://www.forbes.com/sites/aroy/2011/02/23/sebelius-class-act-is-totally-unsustainable-mandate-possible/

5 Bold/italic emphasis throughout this report not necessarily in the original.

6 The documents provided did not include the study completed by the Moran group despite it being referenced by the chief actuary and a senior democrat staff member for the Senate Health, Education, Labor, and Pensions Committee. The senior democrat staff member referenced the Moran report on October 20, 2009 at the Kaiser Family Foundation event “The Sleeper Issue: Long-term Care and the CLASS Act,” page 78. http://www.kff.org/healthreform/upload/102009_KFF_CLASS_Act_Transcript_Final.pdf

7 Foster, Richard. “Estimated Financial Effects of the ‘America’s Affordable Health Choices Act of 2009’ (H.R. 3962), as passed by the House on November 7, 2009, November 13, 2009. http://www.cms.gov/ActuarialStudies/downloads/HR3962_2009-11-13.pdf Foster, Richard. “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act’ As Amended.” Office of the Actuary, Centers for Medicare and Medicaid Services, April 22, 2010. https://www.cms.gov/ActuarialStudies/Downloads/PPACA_2010-04-22.pdf

8 Comments made on October 20, 2009 at Kaiser Family Foundation Event. “The Sleeper Issue: Long-term Care and the CLASS Act.” Page 49-50. http://www.kff.org/healthreform/upload/102009_KFF_CLASS_Act_Transcript_Final.pdf

9 Roy, Avik. “Sebelius: CLASS Act is ‘Totally Unsustainable,’ Mandate Possible,” Forbes, February, 23, 2011 http://www.forbes.com/sites/aroy/2011/02/23/sebelius-class-act-is-totally-unsustainable-mandate-possible/  House Energy & Commerce Committee. Hearing entitled, “The Implementation and Sustainability of the New, Government-Administered Community Living Assistance Services and Supports (CLASS) Program,” March 17, 2011. http://republicans.energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=8332

10 Congressional Budget Office, “CBO’s 2011 Long-Term Projections for Social Security: Additional Information,” August 2011. http://www.cbo.gov/doc.cfm?index=12375  

11 Social Security Administration. “Annual Performance Play for Fiscal Year 2012,” page 21. http://www.socialsecurity.gov/performance/2012/APP%202012%20508%20PDF.pdf

12 Astrue, Michael, Commissioner of the Social Security Administration. Statement before the House Committee on Ways and Means, Subcommittee on Social Security and the House Committee on the Judiciary, Subcommittee on the Courts, Commercial and Administrative Law. July 11, 2011. http://www.ssa.gov/legislation/testimony_071111.html

13 Government Accountability Office. Report to Congressional Committees. “High-Risk Series: An Update.” February 2011, page 147. http://www.gao.gov/new.items/d11278.pdf

14 The 2011 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. Table VI.C5. http://www.ssa.gov/oact/tr/2011/tr2011.pdf

15 National Conference of Insurance Legislators. Letter to the Honorable Kathleen Sebelius. August 4, 2011. http://www.ncoil.org/Docs/2007430d.pdf

Democrats Propose Changing the Rules Mid-Stream — Again

On “Meet the Press” yesterday, Health “Czar” Nancy-Ann DeParle claimed that the Senate had already passed its health bill by a “supermajority,” and “we’re not talking about changing any rules here.”  But it’s worth noting that the ONLY way the Senate ever passed legislation with 60 votes in the first place is because Democrats in Massachusetts changed their rules for the sole purpose of allowing an unelected senator to cast the deciding 60th vote.  As one observer noted, the Legislature’s action was “all about health care,” and the White House weighed in personally with the Governor to jam the process through.  Here’s what some of President Obama’s fellow Democrats said back in September about the Administration-led initiative to change the rules of the process:

Senator Brian A. Joyce, a Milton Democrat wrote 2004 legislation for special Senate elections:  “It’s wrong to change the rules depending on who’s in power…We shouldn’t change the rules by which we govern our democracy depending upon who the governor is.’’

Senator Steven A. Tolman, a Brighton Democrat:  “This is politics, right? Sure it’s politics.’’

Representative Cory Atkins, a Concord Democrat:  “Some people say this is political…Of course it is political.”

A “political” move to “change the rules depending on who’s in power?”  Sounds a lot like downgrading a 60-vote majority down to a 51-vote reconciliation bill – making this the second time the Democrat majority would attempt to change political rules in order to jam through a government takeover of health care…

What Do the American People Need? JOBS What Do Democrats Want to Give Them? Government-Run Health Care

President Obama’s “jobs summit,” coupled with Friday’s release of November jobs numbers, once again raise serious questions about the majority’s ineffectual attempts to combat record-high unemployment levels. For much of the past year, Democrats have focused on spending trillions on a government takeover of health care—funded by hundreds of billions of dollars in tax increases that will destroy jobs, not create them:

  • November 12, 2008: Senate Finance Committee Chairman Baucus releases his “Call to Action” white paper on health reform—which proposes taxing businesses that cannot afford to provide coverage to their workers. The previous Friday, government statistics revealed the number of long-term unemployed had risen by 10 percent in the past month alone.
  • February 26, 2009: The White House releases its budget outline with a $634 billion “reserve fund” for the uninsured. The reserve fund would receive most of its revenue from tax increases on individuals with incomes over $250,000—including small business owners. The following week, the Labor Department reported that the economy shed 651,000 jobs in February—and 2.6 million over the previous four months.
  • April 29: House and Senate Democrats approve Obama budget, including a “reserve fund” that allows Democrats to raise taxes to fund a government takeover of health care. The move came in a month where private-sector employment fell by 611,000 jobs.
  • May 12: Senate Finance Committee holds roundtable on financing health reform, where witnesses advocate raising taxes on small businesses to finance a government takeover of health care. The previous Friday, the Bureau of Labor Statistics reported the total number of unemployed workers reached 13.7 million.
  • June 7: Press reports indicate that a bill offered by the late Senate HELP Committee Chairman Ted Kennedy would raise taxes on businesses by as much as $300 billion to fund health “reform.” According to a model developed by Council of Economic Advisors Chair Christina Romer, such a proposal would destroy 4.7 million jobs. Two days earlier, the unemployment rate jumped half a percent to reach a 26-year high of 9.4 percent.
  • June 19: The House Democrat leadership unveils legislation imposing an 8 percent tax on businesses that cannot afford to fund their workers’ health coverage. The Democrat proposal for a tax on jobs was released during a month when businesses shed an additional 467,000 jobs.
  • July 17: Two House Committees approve legislation that would raise taxes on businesses that cannot afford to offer health coverage by $208 billion—along with more than half a trillion dollars in a “surtax” that would hit many small business owners. That month, the average period of workers’ unemployment exceeded 25 weeks—an all-time high.
  • September 9: President Obama’s message to a joint session of Congress criticizes companies who cannot afford to buy health coverage for their employees as “gam[ing] the system by avoiding responsibility to themselves or their employees.” That same month, the number of long-term unemployed—those out of work for at least six months—exceeded 5 million—an all-time high, and more than double the number in January 2009.
  • October 13: Senate Finance Committee Democrats approve legislation (S. 1796) imposing “fair share” taxes on employers who cannot afford to offer coverage, which the liberal Center for Budget and Policy Priorities criticized as a “tax [on firms] for hiring people from low- or moderate-income families.” That same month, the unemployment rate among youth, who are most likely to be affected by such mandates, reached 27.6 percent—also an all-time high.
  • November 7: The House passes Speaker Pelosi’s government takeover of health care (H.R. 3962), complete with more than $700 billion in job-killing tax increases that would according to an Obama Administration model demolish or destroy up to 5 million jobs. The vote took place one day after the unemployment rate jumped above 10 percent for the first time in a generation—and on the same day that the front-page of the New York Times asserted that unemployment and under-employment had reached levels not seen since the Great Depression.

The American economy remains in the midst of record-high unemployment. Yet the Democrat leadership in both chambers insists on pushing forward their government takeover of health care that would only increase job losses, while causing millions to lose their current health coverage in the process. Many may question: What are the majority’s misplaced priorities that would see them dither on stemming job losses in order to pursue a single-minded fixation with creating a new government-run health care system?