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.

Would These Alternative To Health Reform Mandates Work?

Nine categories of “voluntary alternatives” to the mandates in the Patient Protection and Affordable Care Act (ACA, P.L. 111-148) might encourage more individuals to enroll in private insurance coverage, according to the assessments of health care experts interviewed by the Government Accountability Office (GAO).

After looking over the alternatives, let us know if you think they would reduce the number of uninsured by more than 30 million (the approximate reduction predicted for the ACA)?

At the request of Sen. Ben Nelson (Neb.), the GAO obtained the views of 41 experts from 21 organizations on the range of approaches Congress could consider to encourage voluntary enrollment in private health insurance coverage

The GAO report states that the ACA “mandates that individuals, subject to certain exceptions, obtain health insurance coverage or pay a financial penalty beginning in 2014—the ‘individual mandate.’” At the same time, the ACA also imposes a number of requirement on insurers and employers, including automatic enrollment for employers with more than 200 employees and an assessment on certain employers with 50 or more employees, including employers who do and do not offer health coverage.

Primary Approaches

The experts interviewed in the GAO report discussed several specific approaches to encourage voluntary health insurance enrollment during our interviews. The approaches are summarized below, presented in the order of frequency with which they were proposed

• Modify open enrollment periods and impose late enrollment penalties.


• Expand employers’ roles in auto-enrolling and facilitating employees’ health insurance enrollment.


• Conduct a public education and outreach campaign.


• Provide broad access to personalized assistance for health coverage enrollment.


• Impose a tax to pay for uncompensated care.


• Allow greater variation in premium rates based on enrollee age.


• Condition the receipt of certain government services upon proof of health insurance coverage.


• Use health insurance agents and brokers differently.


• Require or encourage credit rating agencies to use health insurance status as a factor in determining credit ratings.

In discussing these approaches, four key themes emerged, according to the GAO.

• First, experts emphasized that most people would prefer to purchase health insurance coverage; however, to the extent that high cost is a barrier, the use of financial incentives is key.


• Second, they stated that regardless of the particular approach taken to increase voluntary enrollment in the absence of an individual mandate, the availability of affordable, high-quality health care plans with a basic set of benefits, and full coverage of preventive care services is essential to encouraging voluntary enrollment in the coverage.


• Third, experts said that strong marketing and public education from trusted, community-based sources informing people about their health care choices, their costs, and the consequences of not enrolling in a timely manner are important.


• And fourth, they said convenient access to the health insurance system through multiple access points staffed by knowledgeable individuals would further facilitate enrollment.

Some of the experts also noted that two of the approaches, conditioning the receipt of government services upon proof of health insurance and imposing a tax to pay for uncompensated care, could be considered the functional equivalent of a mandate.

The GAO notes that “we did not explore suggestions that primarily emphasized more generous subsidies or significant expansions of publicly funded insurance programs as a means of expanding coverage.” The report also states that “we did not independently evaluate the potential effectiveness or the legal implications of the approaches individually or in combination.”

The GAO report is Private Health Insurance Coverage: Expert Views on Approaches to Encourage Voluntary Enrollment, GAO-11-392R.

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.

Illinois Health Care Reform Implementation Council releases initial recommendations

States have been active in analyzing the reform requirements of the Patient Protection and Affordable Care Act (ACA) during the past year. Many have formed task forces or commissions to sort out those requirements. Illinois is among the states that has taken action.

The Illinois Health Care Reform Implementation Council, which Governor Pat Quinn established via Executive Order #10-12 in July 2010, has issued its initial report on how Illinois should implement the ACA.

The report indicates the council’s recommendations fall into two categories: issues that the state must address immediately, and decisions that will be made after the council gathers more information from stakeholders and the federal government provides additional guidance.

Health insurance exchange. Foremost among the immediate recommendations is to establish a health insurance exchange for Illinois, governed by a quasi-governmental authority. Other recommendations describe its nature and scope, including initially organizing the exchange as a “market developer” and later transitioning to a “market organizer” model once premium volume and a sufficient number of covered lives are achieved within the exchange marketplace.

According to the report, the council recommends that Illinois initially establish a single exchange entity that sells products to both individuals and small employers. The council also recommends that the state revisit merging the individual and small group risk pools after it receives additional information and analyses of the marketplace and the potential impact of this option.

Insurance protections. The report also indicates that the council recommends immediate action to provide Illinois consumers with the same health insurance protections contained in the ACA to assure fairness and affordability. These protections include:

• internal appeals and external review,
• minimum medical loss ratios, and
• premium rate review.

According to the report, the council recommends that Illinois law be amended as necessary to remove barriers and facilitate formation of nonprofit member corporations eligible for federal funding under the ACA.

Other issues and next steps. The report indicates the council recommends further study on whether Illinois’ definition of “small employer” should be increased from 50 to 100 employees and whether larger employers should be allowed to participate in the exchange.

In addition, the council recommends waiting for further guidance from HHS before deciding whether to require benefits beyond the “essential benefits” defined by HHS. The report explains, “Some of Illinois’ existing benefit mandates may not be included in the definition of ‘essential health benefits.’ The ACA allows states to require qualified health plans offered in the Exchange to provide benefits in addition to the “essential health benefits.” However, states must pay for any portion of subsidized coverage that is attributed to the cost of those additional benefits. The state could consider funding these mandates separate from the Exchange.”

Council process. The council conducted four public meetings in Chicago, Peoria, Carbondale, and Springfield focused on the following issues:

(1) establishing a health insurance exchange and related consumer protection reforms;

(2) reforming Medicaid service structures and enrollment systems;

(3) developing an adequate workforce;

(4) incentivizing delivery systems to achieve high-quality health care;

(5) identifying federal grants, pilot programs, and other non-state funding to assist with implementation of the ACA; and

(6) fostering the widespread adoption of electronic medical records and participation in the Illinois Health Information Exchange.

In addition, the council solicited written comments regarding a series of specific questions concerning implementation of the insurance exchange in Illinois. A fifth public meeting was held in Chicago in February for stakeholders to question and react to the initial recommendations submitted by the council on February 3. Overall, more than 150 individuals and organizational stakeholders shared their suggestions with the council.