Here is a story about how they do budget numbers in Washington, D.C. It’s something to keep in mind when the people there start talking about deficits and savings and all those things.
Politicians in Washington almost always support their positions on budget issues by claiming that their numbers are supported or verified by the Congressional Budget Office. For example, when Congress passed Obamacare in 2010, its supporters claimed that it would save money, and they claimed that the CBO agreed. One of the reasons that Obamacare was going to “save” money was a new program called CLASS, which was short for Community Living Assistance Services and Support. CLASS was a voluntary government insurance program that was supposed to cover home health care services for older or disabled adults. Of course, the reason that the CBO said CLASS was going to save money was that it was going to start collecting premiums right away, but it wasn’t going to pay benefits for five years.
The important thing to understand about the Congressional Budget Office is that when the CBO “scores” proposals for budget purposes, they only look at the costs and income for the first ten years. Those are their rules. (They may even be the law; I don’t know.) Since the CLASS program was going to collect premiums for ten years and only pay out benefits for five years, it was going to have more money coming in than it would have going out over the first ten years. Voilá! It was going to save money – under the rules that the CBO has to operate under. The fact that the program would be a budgetary disaster later on was irrelevant to the way that CBO counts things.
In fact, even though the program was a long-term budget-buster, since the CBO only looks at the first ten years, and since that is how things are calculated for Congressional budgeting purposes, when some Republicans were talking about repealing the CLASS program earlier this year (because it is unsustainable on a long-term basis), under CBO rules the Republicans would have had to either raise taxes or cut other spending to balance the loss of budget savings from repealing the program.* Mind-boggling.
But finally, earlier this month, the Obama administration admitted that they couldn’t come up with a way to make the numbers work for the CLASS program, and they shut it down. (The Senate had included in the original Obamacare legislation a provision requiring the Department of Health and Human Services to certify that the program had an actuarially-sound premium before they could start it up. When they couldn’t certify that, the program had to be shelved.)
This is where it gets interesting – and really bizarre. Once the Obama administration finally admitted what everybody already knew (i.e., that the program didn’t work financially) and said that they were shutting it down, the head of the CBO said this:
“Following longstanding procedures, CBO takes new administrative actions into account when analyzing legislation being considered by the Congress – even if it has not published new baseline projections. Beginning immediately, therefore, legislation to repeal the CLASS provisions in current law would be estimated as having no budgetary impact.”
In other words, if Congress had passed a bill cancelling the CLASS program before HHS acted, then the cancellation would have counted, for CBO purposes, as an $86 million increase in the 10-year deficit calculation. But a month later, after the Administration decided to shut the program down, repealing it wouldn’t count toward the 10-year budget projections.
While I am sure that this makes sense in the strange world of federal government budgeting rules, it obviously doesn’t sense to anybody who lives in the real world. And that is something to remember the next time you hear somebody say that their budget numbers have been confirmed by the Congressional Budget Office.
One final point, not on budgeting but on the Obama administration: Even though the Administration has admitted that it could not come up with a way to make the CLASS program work financially, President Obama still opposes repealing it. Why? According to a White House spokesperson:
“We do not support repeal. Repealing the CLASS Act isn’t necessary or productive. What we should be doing is working together to address the long-term care challenges we face in this country.”
Which is gobbledygook. Maybe I am being cynical, but I think the reason that President Obama doesn’t want to repeal the program is because, if the President gets re-elected and doesn’t have a Democratic Congress, he wants the ability to be able to have his new person at HHS look at the CLASS program and come up with a new theory on why it does work and start implementing it – without needing any kind Congressional approval.**
* “The Definition of Insanity,” The Wall Street Journal, October 4, 2011.
** Some health care “experts” have already criticized the President for shutting the program down, saying that it actually could work (see here). After the election, there is no reason to believe that the President wouldn’t decide they were right after all and start it up again.
Update (10/23/11 9:25 am): For a prior comment on the CLASS Act, see here.