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.

Health Reform Repeal, Defund Efforts Begin; CBO Says Repeal Will Increase Deficit By $145 Billion

On Jan. 5, the first day of the 112^th Congress, Representatives introduced ten bills to repeal or defund the Patient Protection and Affordable Care Act (ACA). The House is expected to vote on one of the repeal bills next week week, H.R. 2, Repealing the Job-Killing Health Care Law Act, sponsored by Rep. Eric Cantor (Va.).

Senate Majority Leader Harry Reid (Nev.) already has noted that the health reform law will not be repealed, given the Democratic majority in the Senate.

Nonetheless, the philosophical battle regarding health reform has begun.  As noted in the title of H.R. 2, Republicans are attacking the potential job losses among small employers once the individual mandate takes effect in 2014. The Democrats are likely to use, at least in part, the argument that repeal would increase the deficit and do nothing to reduce the uninsured.

In response to the expected vote next week, the Congressional Budget Office on Jan. 6 released a preliminary analysis of H.R. 2, which describes “the effects that repealing [ACA] and the relevant provisions of the Reconciliation Act would have on federal budget deficits, the federal government’s budgetary commitment to health care, the number of people with health insurance, and health insurance premiums in the private market.”

As a result of changes in direct spending and revenues, CBO expects that enacting H.R. 2 would probably increase federal budget deficits over the 2012–2019 period by a total of roughly $145 billion, plus or minus the effects of technical and economic changes that CBO will include in the forthcoming estimate. Adding two more years (through 2021) brings the projected increase in deficits to something in the vicinity of $230 billion, plus or minus the effects of technical and economic changes.

New House Speaker Rep. John Boehner (Ohio) has repudiated the forecast of the CBO, saying that its analysts had relied on flawed assumptions they had been provided by Democrats. "CBO is entitled to their opinion," said Mr. Boehner. In general, CBO final budgetary analyses of legislation are accepted by Congress as the official predictor of budgetary effects.

The CBO projections do not include any potential savings in discretionary spending, which is governed by annual appropriation acts. By CBO’s estimates, repeal of the health care legislation would probably reduce the appropriations needed by the Internal Revenue Service by between $5 billion and $10 billion over 10 years. Similar savings would accrue to the Department of Health and Human Services.

Under H.R. 2, about 32 million fewer nonelderly people would have health insurance in 2019, leaving a total of about 54 million nonelderly people uninsured, according to the CBO. The share of legal nonelderly residents with insurance coverage in 2019 would be about 83%, compared with a projected share of 94% under current law.

Effects On Health Insurance Premiums

According to the CBO analysis, if H.R. 2 was enacted, premiums for health insurance in the individual market would be somewhat lower than under current law, mostly because the average insurance policy in this market would cover a smaller share of enrollees’ costs for health care and a slightly narrower range of benefits. Although premiums in the individual market would be lower, on average, under H.R. 2 than under current law, “Many individuals would end up paying more for health insurance—because under current law, the majority of enrollees purchasing coverage in that market would receive subsidies via the insurance exchanges, and H.R. 2 would eliminate those subsidies,” writes the CBO.

Premiums for employment-based coverage obtained through large employers would be slightly higher under H.R. 2 than under current law. In addition, according to the CBO, “Premiums for employment-based coverage obtained through small employers might be slightly higher or slightly lower (reflecting uncertainty about the impact of the enacted legislation on premiums in that market).”

Repeal Or Defund Proposals

These are the repeal or defunding bills introduced on Jan. 5.

H.R.2: Repealing the Job-Killing Health Care Law Act. Sponsor: Eric Cantor (Va.). Referred to the Committee on Energy and Commerce, and the Committees on Education and the Workforce, Ways and Means, the Judiciary, Natural Resources, Rules, House Administration, and Appropriations.

H.R.21: To amend the Internal Revenue Code of 1986 to repeal the mandate that individuals purchase health insurance. Sponsor: Scott Garrett (N.J.). Referred to the House Committee on Ways and Means.

H.R.38: To rescind funds appropriated to the Health Insurance Reform Implementation Fund under the Health Care and Education Reconciliation Act of 2010.Sponsor: John Fleming, (La.). Referred to the House Committee on Energy and Commerce.

H.R.105: To repeal the Patient Protection and Affordable Care Act and related health-care provisions and to enact in its place incentives to encourage health insurance coverage, and for other purposes. Sponsor: Dan Burton (Ind.). Referred to the Committee on Energy and Commerce, and the Committees on the Budget, Education and the Workforce, Natural Resources, House Administration, Ways and Means, the Judiciary, Rules, Appropriations, and Oversight and Government Reform.

H.R.118: To amend the Patient Protection and Affordable Care Act to permit a State to elect not to establish an American Health Benefit Exchange. Sponsor: John Fleming (La.). Referred to the House Committee on Energy and Commerce.

H.R.119: To prohibit the hiring of additional employees by the Internal Revenue Service to implement, administer, or enforce health insurance reform. Sponsor: John Fleming, (La.). Referred to the House Committee on Ways and Means.

H.R.127: To deauthorize appropriation of funds to carry out the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.Sponsor: Tom Graves (Ga.). Referred to the Committee on Energy and Commerce, and the Committees on Ways and Means, Education and the Workforce, the Judiciary, Natural Resources, and House Administration.

H.R.141: To repeal the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.Sponsor: Steve King (Iowa). Referred to the Committee on Energy and Commerce, and the Committees on Ways and Means, Education and the Workforce, the Judiciary, Natural Resources, House Administration, Rules, and Appropriations.

H.R.145: To repeal the Patient Protection and Affordable Care Act (Public Law 111-148) and related health-care provisions. Sponsor: Connie Mack (Fla.). Referred to the Committee on Energy and Commerce, and the Committees on Ways and Means, Education and the Workforce, the Judiciary, Natural Resources, House Administration, Rules, and Appropriations.

H.R.154: To prohibit the use of funds for implementation or enforcement of any Federal mandate to purchase health insurance. Sponsor: Ted Poe (Texas).Referred to House committee. Status: Referred to the House Committee on Energy and Commerce.

H.R.191: To amend the Patient Protection and Affordable Care Act to establish a public health insurance option. Sponsor: Lynn C. Woolsey (Cal.). Referred to the House Committee on Energy and Commerce.

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 and other recent developments in employee benefits, just click here.

In 2011, Implementation And Repeal Will Battle For The Fate Of Health Care Reform

Polar opposites, the effective implementation of health care reform and its wholesale repeal or funding blockade, will dominate the landscape of the Patient Protection and Affordable Care Act in 2011.

In other words, health reform will continue to expand its reach even as the courts and Congress debate the validity of the law.

Repeal, Defund

Several lower courts have begun the inevitable journey of health reform to the Supreme Court, which likely will not end until 2011 or 2012; and Republicans in the House of Representatives have scheduled a January 12 vote on repeal of the ACA, a certainty to pass in the Republican-led House and fail in the Democratic-controlled Senate.

Some analysts have predicted a difficult road in even a partial repeal or defunding efforts. Meanwhile, dozens of health reform provisions already have taken effect or will take effect this year, including those for the following (see also here, here, and here).

• Grandfathered plans


• Coverage for adult children


• Nondiscrimination rules for insured health plans


• Preventive care services


• Lifetime and annual limits


• Minimum loss ratios


• Preexisting condition exclusions


• Claims appeals processes


• Early retiree reinsurance program


• Benefits summary standards


• Expanding patient selection of providers


• Reviews of premium increases


• Small employer health insurance credit 


• Automatic health plan enrollment


• Nursing mother breaks


• Health care Internet portal


• W-2 health coverage disclosure


• Small employer “simple cafeteria plans”


• Over-the-counter medicines not reimbursable through HSAs & HRAs


• Increased excise tax on HSA & HRA non-medical distributions

More detailed information on the health reform provisions taking effect in 2010 and later are available to Wolters Kluwer Law and Business subscribers here.

Recent Guidance

And just in the two weeks since Health Reform Talk took a holiday break, the following implementing guidance has been issued

Health Reform Nondiscrimination Requirements Delayed. The application of the new nondiscrimination requirements in the Patient Protection and Affordable Care Act (ACA) have been delayed, according to IRS Notice 2011-1.

Under Public Health Service Act Sec. 2716 (as added by the ACA), new insured group health plans and plans that are not grandfathered must comply with the IRC Sec. 105(h) nondiscrimination requirements, including rules that the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate. In addition, the benefits provided under the plan may not discriminate in favor of participants who are highly compensated. Notice 2011-1 notes that “because regulatory guidance is essential to the operation of the statutory provisions,” the Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services have determined that compliance with Sec. 2716 “should not be required (and thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued under Sec. 2716.”

IRS Offers New Guidance On FSA And HRA Debit Cards. The Internal Revenue Service has issued new guidance in IRS Notice 2011-5 allowing the continued use of health flexible spending arrangement (FSA) and health reimbursement arrangement (HRA) debit cards for the purchase of prescribed over-the-counter medicines and drugs.

Information Sought On Value-Based Health Plans. Federal agencies are seeking additional information regarding specific examples and best practices of value-based insurance design (VBID) for recommended preventive services under the Public Health Service Act Sec. 2713, as added by the Patient Protection and Affordable Care Act (ACA). In addition, the agencies seek information on data used to support and inform VBID benefit design, measurement, and evaluation in the context of recommended preventive services.

The Internal Revenue Service, the Department of Labor’s Employee Benefits Security Administration (EBSA), and the Department of Health and Human Services’ Office of Consumer Information and Insurance Oversight sought the information in a request for information issued jointly in the Dec. 28, 2010, Federal Register.

HHS Issues New and Updated Guidance On Early Retiree Reinsurance Program. The Department of Health and Human Services’ Early Retiree Reinsurance Program (ERRP) Center has published new and revised questions and answers for plan sponsors, including the questions and answers on the application for the program, costs and reimbursements, early retiree issues, and price concessions and cost adjustments.

DOL, HHS, Treasury Answer More Questions On Health Reform, Mental Health Parity. On December 22, the Department of Labor's Employee Benefit Security Administration (EBSA), the Department of Health and Human Services (HHS), and the Treasury Department (the Departments) released the fifth set of frequently asked questions about the Patient Protection and Affordable Care Act (ACA). The FAQs also addressed some issues related to the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (MHPAEA).

DOL Requests Comments On Nursing Mother Provision Of Health Reform. The Patient Protection and Affordable Care Act (ACA) amended the Fair Labor Standards Act (FLSA) to require employers with more than 50 employees to provide reasonable break time and a place for nursing mothers to express breast milk for up to one year after the child's birth. This provision became effective when the ACA was signed into law on March 23, 2010. While the Department of Labor's Wage and Hour Division has issued a fact sheet on the provision, entitled Break Time for Nursing Mothers.  Under the FSLA, the DOL has requested comments on the provision before formulating further guidance. The request for information was published in the December 21 Federal Register.

HHS Proposes A Health Insurance Rate Increase Review Program Required By ACA. A new proposed rule from the Department of Health and Human Services' (HHS) Office of Consumer Information and Insurance Oversight (OCIIO) would establish a rate review program to ensure that all rate increases that meet or exceed an established threshold are reviewed by a state or the HHS to determine whether the rate increases are unreasonable. This requirement is included in Sec. 2794 of the Public Health Service Act, as enacted in the Patient Protection and Affordable Care Act (ACA), relating to the disclosure and review of unreasonable premium increases. Beginning in 2014, the ACA empowers states to exclude from the new health insurance exchanges health plans that show a pattern of excessive or unjustified premium increases. The rule was published in the December 23 Federal Register.

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 and other recent developments in employee benefits, just click here.

Health Reform Law Is Amended (A Tiny, Tiny Bit)

It’s not much of a change, but Congress has passed its first amendment to the Patient Protection and Affordable Act (ACA) since President Barack Obama signed it in March 2010.

Forget about the calls for wholesale repeal—even provisions Republicans and Democrats agreed should be changed remain in the law (more about that later). But on December 8 and 9, the Senate and the House of Representatives passed the Medicare and Medicaid Extenders Act of 2010, which in part extends current Medicare payment rates through Dec. 31, 2011. Under the current "sustainable growth rate" (SGR) formula, Medicare physician payment rates were scheduled to be reduced by 25% on January 1, 2011.

Congress has provided temporary relief (also known as the “doc fix”) from these Medicare reductions every year since 2003.

The estimated cost of the provision to extend Medicare payment rates until 2012 is $14.9 billion over ten years—here is where the health reform law comes into play. The cost of the extension will be paid for by a change in the refundable tax credit formula in the ACA.

Under IRC Sec. 36B as added by the ACA, certain taxpayers who purchase qualified health plans through state exchanges are entitled to a refundable income tax credit equal to the premium assistance credit amount, starting in 2014. The premium assistance credit applies to tax years ending after December 31, 2013.

Under the law, if an individual’s income turns out to be higher than the amount that was used to calculate the advanced premium tax credit, the individual must return part or all of the excess payment to the government. Originally, the amount repaid by the individual was limited to $250 for individuals and $400 for families for those at or below 400% of the Federal Poverty Level (FPL)

H.R. 4994 provision increases the existing limits of $250 and $400, and replaces the across-the-board structure with a scaled structure that starts with lower limits for those with lower incomes. For those with incomes less than 200% of FPL, the new limit would be $600.  For those with incomes of at least 450% but less than 500% of FPL, the limit on the payback would be $3,500.

Estimated savings from this minor change? More than $19 billion.

Oh, that provision that everyone wants changed? It went down in defeat late in November. There were at least two proposals to repeal Form 1099 reporting requirements for small businesses that were included in health reform. The Form 1099 requirements, signed into law as part of the PPACA, mandate that all businesses file a return for payments to vendors in excess of $600 beginning in 2012. The measure is estimated to raise some $19 billion over 10 years to help offset the cost of health care reform.

Small businesses strongly opposed the provision, claiming the excessive paperwork is too burdensome. President Obama had earlier signaled that he would support changes to the Form 1099 rules, and the provision had wide support among both Republicans Democrats.

The differences in the provision that got changed and the one that did not?  Money—the amendment to the doc fix is paid for by increasing fees to taxpayers—thus the change in health reform does not cost the federal government any money. The burdensome 1099 reporting repeal had no offsetting revenue and could not overcome that fiscal hurdle.

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 and other recent developments in employee benefits, just click here.

Health reform losing popularity

According to a recent Rasmussen Reports telephone survey, fifty-eight percent of U.S. voters favor repeal of the Affordable Care Act, including forty-six percent who "strongly favor" repeal. Thirty-six percent of those responding were opposed to repeal.

And, a recent Kaiser Family Foundation tracking poll shows that health care reform has lost some popular support. Only forty-three percent of Americans responding to the poll viewed the law favorably in August, which is down from fifty percent in July, and forty-five percent held unfavorable views.

It seems to be the individual mandate that's causing the trouble, since seventy percent of those surveyed by Kaiser were not in favor of the requirement that they either buy health insurance or pay a penalty. On the other hand, approximately seventy-five percent of those surveyed support helping low- and moderate-income Americans to buy coverage via subsidies.

Both Rasmussen and Kaiser indicate that attitudes toward the health care reform law seem to run along party lines. Rasmussen points out that repeal was favored by eighty-six percent of Republicans and fifty-seven percent of voters not affiliated with either party, while fifty-nine percent of Democrats were opposed to repeal.

According to Kaiser, sixty-eight percent of Democrats that were polled supported health care reform while seventy-seven percent of Republicans opposed it.

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



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