Health and Human Services (HHS) Secretary Kathleen Sebelius testified in front of the Senate Finance Committee yesterday about the President’s 2012 fiscal year budget and the status of health care reform. Despite the projected $1.6 trillion deficit in the President’s budget, Sebelius claimed that it represents “the blueprint for putting (President Obama’s) vision into action and making the investments that will grow our economy and create jobs.” Here are some of the noteworthy exchanges the Secretary had with Senators on the committee.

Senator Max Baucus (D–MT) lauded the Medicare “doc fix” in the budget, although he expressed a desire for a permanent fix. The doc fix in the budget is a two-year fix paid with spending offsets. However, as Bob Moffit and Kate Nix point out, the temporary fix is paid for with spending offsets far in the future, indicating that the President is once again punting difficult decisions.

Many Senators expressed concern over the maintenance of effort provisions for Medicaid eligibility contained in Obamacare. Senator Tom Coburn (R–OK) pressed Sebelius on the possibility of block granting Medicaid and removing the rules imposed on states. The Secretary pressed back with an insistence that states already have flexibility to manage their populations that they are not taking advantage of. But her claims of state flexibility for managing Medicaid and states’ ability to choose benefit packages in the soon-to-be-created state health exchanges are strongly contradicted by governors across the nation.

Senator Olympia Snowe (R–ME) expressed skepticism of the tremendous increase in government bureaucracy, noting that the office of Secretary of HHS is mentioned 1,700 times in the new health law. Snowe expressed concern over the 121 pages of regulations relating to the grandfather clause, which lays out the reasons for how current health insurance plans lose their grandfathered status and become subjected to all the Obamacare mandates. It does seem apparent that the President’s pledge that individuals who like their health insurance can keep it will be broken. Snowe also wanted to know why Maine’s waiver of the minimum loss ratio requirement hasn’t been approved yet, and she indicated that if the waiver is not approved, Maine will lose a health insurance company that covers 14,000 individuals.

It was notable that the Secretary did not have a response to the Congressional Budget Office (CBO) estimate, mentioned by several Senators, that Obamacare will result in 800,000 fewer Americans working when its mandates and subsidies fully take hold. The nonpartisan analysis of the CBO contradicts the message that Sebelius brought before the committee of “winning the future” through the President’s budget and health care law.

The final area of Obamacare that Sebelius was questioned on was the Community Living Assistance Services and Support (CLASS) program, a new government-run entitlement for long-term-care insurance. The Secretary agreed that CLASS—as written in the law—is fiscally unsustainable and would require a massive infusion of taxpayer funds. She mentioned that the law allows HHS discretion in changing the program’s design, mostly through tightening eligibility, to prevent an adverse-selection death spiral. Skepticism abounds, however, that HHS can actually find the right formula to fix CLASS, given the program’s fundamentally flawed structure.

Moreover, Sebelius’s interpretation of the CLASS program is confusing. She remarked that “the program is designed for people to set aside their own money and then draw out their own money with no taxpayer support. The framework is not perhaps designed to mandate that only a few options could be available since people are basically spending their own money.” She makes CLASS sound like a government savings program rather than what the law says it is—a government insurance program that collects premiums and then pays claims to beneficiaries that meet the qualifications. The CLASS program represents government overreach and is a potential threat to taxpayers regardless of the Secretary’s apparent misunderstanding of it. But to inform the debate going forward, this misunderstanding needs to be resolved.