The Obama administration will not implement a new program to provide Americans with long-term-care insurance, abandoning a controversial part of the healthcare overhaul the president signed last year.
The move will not affect other parts of the sweeping law, including preparations for a major expansion of health insurance coverage starting in 2014, according to administration officials.
But the decision to give up on what was once touted as a key benefit of the law marks a major retreat for the administration and a vindication for critics who have voiced doubt about the promises that Democrats made as they fought to enact the law last year.
It also struck a blow at a long-cherished goal of consumer advocates and liberal Democrats, especially the late Sen. Edward M. Kennedy, who championed a government entitlement to help elderly Americans pay for home care or a nursing home.
In a letter to senior Democrats and Republicans on Capitol Hill, Secretary of Health and Human Services Kathleen Sebelius said such a benefit remained crucial.
But she said the program envisioned in the healthcare law — Community Living Assistance Services and Supports, or CLASS — couldn’t have been structured to collect enough in premiums to remain solvent.
“For 19 months, experts inside and outside government have examined how [the Department of Health and Human Services] might implement a financially sustainable, voluntary and self-financed long-term-care insurance program under the law,” Sebelius wrote. “But despite our best analytical efforts, I do not see a viable path forward for CLASS implementation.”
Republican critics of the CLASS program urged even more aggressive action to eliminate the benefit.
“Simply setting aside the program for the near term is not enough,” said Sen. John Thune (R-S.D.). “Repeal is the only solution to ensuring American taxpayers will not be on the hook in the future for this disastrous entitlement.”
Rep. Frank Pallone Jr. (D-N.J.), a leading proponent, criticized the administration’s decision and pledged to work to revive the program.
“The Obama administration is simply wrong,” he said. “This is too important to give up.”
Kennedy, Pallone and many consumer advocates pushed for the long-term-care program amid evidence that few Americans have private insurance for long-term care. Many elderly Americans face tens of thousands of dollars in bills for home care or for stays in nursing homes, which are not covered by Medicare, the federal program for the elderly and disabled.
Nursing home stays are covered by the Medicaid program for the poor. But in order to qualify for aid, seniors have to spend down their resources, only to then become a burden on the government.
Advocates for a new entitlement — including AARP, the Alzheimer’s Assn. and the National Council on Aging — argued that this situation could be avoided if workers paid a portion of their paycheck into a long-term-care insurance program so they could draw on its benefits when they got old.
As Democrats crafted the healthcare law, early budgetary projections from the nonpartisan Congressional Budget Office estimated that because workers could start paying into the CLASS program for five years before benefits became available, it would show a positive balance for years, helping to offset the overall cost of the healthcare law.
That was welcome news to Democrats, who were struggling to find ways to show that the law wouldn’t widen the deficit.
But there were also early warnings that the CLASS program would not be sustainable over the long run.
Because the program is voluntary, younger, healthier workers would be less likely to sign up than older, sicker ones.
That could create a destructive cycle in which premiums would have to rise to pay out higher benefits, in turn driving away even more healthy workers and pushing premiums even higher.
Administration officials predicted just such a scenario.
“This imbalance … would cause the program to quickly collapse,” Kathy Greenlee, the program administrator, concluded in a memo to Sebelius.
Greenlee predicted that premiums for the program could have cost $391 a month, or even as much as $3,000 a month, for a benefit that paid out only about $50 a day.
Administration officials have not proposed an alternative. Nor, in the current partisan environment, does it appear likely that lawmakers will fix the program.
In her letter to congressional leaders, Sebelius warned that by 2020, an estimated 15 million elderly Americans will need some kind of long-term care, with few having insurance.
“Without insurance coverage or the personal wealth to pay large sums in their later years,” she wrote, “more Americans with disabilities will rely on Medicaid services once their assets are depleted, putting further strain on state and federal budgets.”