Hidden Costs Of Health Care And The CLASS Act

Individuals in the United States spend $363 billion more on health care than is traditionally reported by the Centers for Medicare and Medicaid Services, according to a new Deloitte report.

More than half of that additional spending (55%) was for the estimated value of supervisory care, or care given by unpaid relatives and friends.

The connection to health care reform? Sec. 8002(a)(1) of the Patient Protection and Affordable Care Act (ACA, P.L. 111-148), as I explain below.

ACA Sec. 8002(a)(1) added Title XXXII to the Public Health Service Act (PHSA) to establish the Community Living Assistance Services and Supports (CLASS) Program,

a new national, voluntary, consumer-funded insurance program, the CLASS Program, will help participants who have significant functional limitations to pay for assistive services and devices to allow them to continue to live in their homes or in a community setting. Employers may elect to deduct CLASS premiums from employees' paychecks.

The CLASS Act is an employer-based program meant in part to take the place of private long-term care insurance, which few people currently have. Employers must choose to enroll in the program, and employees can opt out if they wish.

The CLASS program would address those additional costs identified in the Deloitte report as “supervisory care.” However HHS Secretary Kathleen Sebelius already has acknowledged CLASS program funding difficulties. In addition, at a recent House hearing, HHS Assistant Secretary for Aging Kathy Greenlee said, “We are committing to making reforms to the program so that we can hit the financial targets,”  Ms. Greenlee added that HHS would not implement the program without those changes

So here is the dilemma: a substantial part of consumers’ increasing health cost burden is now and will continue to be long term care expenses (remember, baby boomers are just hitting normal retirement age). The CLASS program appears to address that problem, but even before it is implemented, the common wisdom is that the program is financially flawed.

What to do? Republicans want to eliminate the program, Democrats want to make it financially sound.

What do you think?

More on That Deloitte Study

Typically, national health expenditures are based on the CMS’s National Health Expenditure Accounts (NHEA), which totaled $2.467 trillion for 2009. Deloitte's study, developed in collaboration with Oxford Economics, adopted a broad view of health care expenditures which includes both direct and indirect costs, as well as items such as functional foods and nutritional supplements, complementary and alternative medicine (CAM) goods and services, and the imputed value of unpaid supervisory care provided to sick people by family and friends. The study also used data from a phone survey of 1,008 adult U.S. consumers conducted by Harris Interactive in September-October 2010.

The additional $363 billion is 14.7% more than the NHEA figures. Demonstrating the significance of the amount consumers now spend on health care, the additional costs captured in the new Deloitte study support an increase in consumer discretionary spending on health care from 16.2%, for items traditionally reported by the government, to 19.9%, which surpasses housing and utility costs at 18.8%.

High Costs Of Supervisory Care

More than half of the spending (55%) in these ancillary areas was for the estimated value of supervisory care, or care given by unpaid relatives and friends. Supplemental expenditures included complementary and alternative medicine (CAM) practitioners (8%) and products (1%), functional foods and other nutritional products, vitamin and mineral supplements (15%), health publications (1%), ambulance services (3%), other ambulatory care, such as blood banks, some health promotion programs (6%), mental health services (8%), homes for the elderly (4%), and weight loss facilities (1%).

"It has been one year since the passage of health care reform, and our report sheds new light on the hidden costs of health care, and how these costs can add up significantly to billions of dollars and can even eclipse housing as a household expense," said Paul Keckley, executive director, Deloitte Center for Health Solutions. "Our study explores the financial context for the decisions consumers - not simply patients - make about how they spend their money on health care, which will only increase in importance as health care reform continues to take hold."

The Deloitte report, The Hidden Costs of U.S. Health Care for Consumers: A Comprehensive Analysis, was conducted by Deloitte's Center for Health Solutions and Center for Financial Services to gauge the total costs consumers spend out of their own pockets on health care products and services, beyond what is typically paid by insurers and other government sources, such as Medicare and Medicaid.

"The ability of the U.S. economy to recover will be affected in part by how much consumers have in their pockets to spend," said Andrew Freeman, executive director of the Deloitte Center for Financial Services. "This reveals a tremendous burden on the average consumer."

Additional findings in the report:

• According to the Deloitte study, the total 2009 U.S. per capita expenditures were $9,217; professional services (29%) and hospital care (27%) were the biggest categories.


• The estimated value of supervisory care ($199 billion) is significantly higher than total spending on nursing homes ($144 billion) and total spending on home health care ($72 billion), and was only somewhat less than prescription drug expenditures ($246 billion).


• Approximately 70% of spending on nutrition industry items was directed towards functional foods, a category which includes such items as enriched cereals, breads, sports drinks, bars, fortified snack foods, baby foods and prepared meals.


• Seniors account for 36% ($1.01 trillion) of total health care expenditures, but are only 13% of the population.


• Nearly 83% of the $2.83 trillion 2009 U.S. health expenditures were attributed to those with family incomes of $100,000 or less, who make up 89% of the total population.


• One in five (21%) adults surveyed said they paid a medical bill late in the last 12 months.


• A total of 27% of adults estimate that 5% or less of their household budget is spent on health care; 17% said 26% or more is spent on health care.


• A majority (80%) of adults surveyed said they would use generic medicines, seek free advice from a pharmacist or other medical professional (70%), and use technology (61%) if it would save money for health care.


• Approximately 43% would visit a retail clinic, and one in five (20%) would visit another country for more affordable medical care.


• And, 26% would skip a medical test or screening, skip a visit to the dentist or doctor altogether (26%), or skip refilling a prescription (22%) to save money on health care.

"Our study suggests that as the U.S. economy struggles to rebound and consumers continue to be stretched to pay their bills, they are confronted with difficult choices, such as paying for health care instead of other household expenses," added Mr. Keckley. "Many consumers are turning to alternative and over-the-counter products, switching to generic medicines, or even skipping the doctor or visiting a retail clinic instead to save money. Health care organizations looking to address these unmet consumer needs should consider their strategy to expand their focus to include alternative products and services outside of the confines of the traditional health care sector."

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform implementation and other recent developments in employee benefits, just click here.