healthcare-care-reform-revisted.pngEven the most ardent supporters of the Patient Protection and Affordable Care Act (PPACA), last year’s landmark healthcare reform law, acknowledge that it’s not perfect—indeed, that changes will be needed to correct defects that become apparent over time.

A good example came last week, when Kathleen Sibelius, the secretary of the U.S. Department of Health & Human Services, pulled the plug on the so-called CLASS Act, the section of PPACA that would have created a new federal government long-term care insurance program.

The Community Living Assistance Services and Supports Act (CLASS) was added to the healthcare reform legislation as it made its way through Congress in 2009. Controversial from the start, the program envisioned a vast structure in which employers would voluntarily enroll employees in payroll deduction plans to pay premiums for future long term care coverage. Employees could opt-out within a certain period of time after enrollment. Read more.

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Healthcare Reform Revisited: HHS Pulls Plug on CLASS Act

Wed Oct 19, 2011

healthcare-care-reform-revisted.pngEven the most ardent supporters of the Patient Protection and Affordable Care Act (PPACA), last year’s landmark healthcare reform law, acknowledge that it’s not perfect—indeed, that changes will be needed to correct defects that become apparent over time.

A good example came last week, when Kathleen Sibelius, the secretary of the U.S. Department of Health & Human Services, pulled the plug on the so-called CLASS Act, the section of PPACA that would have created a new federal government long-term care insurance program.

The Community Living Assistance Services and Supports Act (CLASS) was added to the healthcare reform legislation as it made its way through Congress in 2009. Controversial from the start, the program envisioned a vast structure in which employers would voluntarily enroll employees in payroll deduction plans to pay premiums for future long term care coverage. Employees could opt-out within a certain period of time after enrollment.

From the beginning CLASS faced insurmountable challenges. Most important, the law required the program to be financially solvent for a period of 75 years—to avoid creating another open-ended federal entitlement that would require government subsidies and explode future budget deficits.

The core issue, of course, was that in order to ensure long-term program solvency today’s employee premiums could be exorbitant—easily $100-$200 per month. To the extent that monthly premiums were high enough to guarantee program solvency, however, employee participation was likely to remain low or require substantial federal subsidies.

In addition, opponents of CLASS pointed out that 10-year federal budget impact projections artificially counted immediate inflows of employee premiums as federal government revenue while long-term care insurance benefits would not affect government spending until after five years, technically contributing a “surplus” of $70 billion through 2019. That $70 billion represented one-half of the total $124 billion PPACA was supposed to reduce the 10-year federal budget deficit.

In any event, Secretary Sibelius on October 14 informed Congressional leaders that because HHS was unable to design the premiums-benefits mix to ensure solvency, i.e., without federal subsidies, “I do not see a viable path forward for CLASS implementation at this time.”

What does the demise of CLASS mean for the healthcare reform law? The short answer is that pulling the plug on the new long term care insurance program has no effect because CLASS was not germane to healthcare reform in the first place. In truth, CLASS was tacked on mainly to help the accounting case that PPACA was fully paid for.

But the demise of CLASS occurs in the context of severe headwinds buffeting the healthcare reform law, not the least of which is a Supreme Court decision next year possibly invalidating the law’s mandate that individuals buy health insurance.

The bottom line is that PPACA is neither perfect nor finished. CLASS is gone but other provisions remain deeply controversial.

But now the genie is out of the bottle: healthcare reform will be an ongoing legislative process for years to come and until a sustainable consensus is achieved that enjoys broad support.