The Class Act and The Long Term Care Commission: Could Real Help Be On the Way?

Brett Seekins, Healthcare Consulting Senior Manager
February 2013

It’s no secret that long-term care providers, specifically nursing homes, are financially in dire straits.  The Class Act was supposed to prop this up, but was recently repealed and, more dramatically, completely stripped from federal attention during the last rounds of fiscal cliff negotiations.

Now what do we do?  And, how are our nursing homes going to succeed?

First, let’s understand the climate that nursing homes operate under. 

Confusion regarding the relative financial position of nursing homes is somewhat clouded by misconceptions in the market place.  The reality is that the payor-mix in the industry is heavily concentrated with Medicaid admissions.  This payor source doesn’t pay anywhere near the cost of providing services to that patient population.

In fact, in fiscal year 2012, the national average Medicaid shortfall, a measure of the difference between the cost of providing services and what you’re actually paid, is a staggering $(22.34) per person per day.  Further, national unreimbursed allowable Medicaid costs are expected to exceed $7 billion.  (A Report on Shortfalls in Medicaid Funding for Nursing Center Care, a commissioned report by American Health Care Association, December 2012.)

Most nursing homes average between 60% to 70% Medicaid census.  How then is it possible to operate given these losses over such a large patient population?  Are other payor sources making up the difference?  Could it be Medicare?

Well, sort of.  Most people who understand nursing home funding matters tend to think that Medicare overpays for services utilizing a perspective payment system.  This system is essentially a ‘what you get paid is what you get paid’ type of system.

Upon admission, a patient is assessed to determine a plan of care, a set of person centered goals and then a raw score is developed that fits into a federal payment based on the services and needs of that patient.  The patient score equates to 1 of 66 payment groups which correlates to a wage adjusted payment.  If you can manage the payment in accordance with the patient services and needs and there’s some money left over afterward, you can keep it.  If you overspend your payment, that loss is on you.  There’s no exception opportunity to apply for additional funding.

If there’s a Medicare profit margin, it can be used to cover the Medicaid shortfall.  But, at over $(20) per person per day in Medicaid losses and an increasingly higher Medicaid patient population, on average, the Medicare cross-subsidization of the Medicaid shortfall no longer works.  The cross-subsidization fails at (2.8%) on average nationally.

To bring these losses closer to home, New Hampshire leads the nation in its Medicaid shortfall at a whopping $(57.38).  Maine weighs in at $(19.11), Massachusetts $(31.02), Vermont $(23.68), Connecticut $(14.73) and Rhode Island $(15.58).

The Class Act was a central part of the Patient Protection and Affordable Care Act (PPACA, March 2010).  It was a long time work of the late Senator Edward M. Kennedy, Massachusetts.

The purpose of the program was to provide enrolled paying members with cash benefits that could be used to purchase non-medical services and supports necessary to remain in their community and at their home.  This is not an entitlement program, rather it is voluntary.  This was to be another federal step to provide services in alternate places other than a nursing home where care tends to be very expensive.

Another way to think about that is, 1% of Americans use 30% of health care services, 5% of Americans use 50% and 10% use 80% (The Kaiser Foundation, 2009).  End of life care, particularly nursing home care, is extremely expensive. 

The Class Act was attempting to control this growth and reduce this disparity by providing an insurance program that would let enrollees tap into their benefits to receive treatment earlier.  The bet was that this effort would arrest the development of chronic illnesses, cognitive impairments and multiple functional limitations that would eventually lead one to institutionalized care, such as a nursing home, if not properly treated.

There are other state and federal programs in the market that have the same goal as The Class Act.  However, with a few exceptions, this program wasn’t going to be federally funded.  Working adults would be able to make voluntary monthly premium contributions establishing the benefit for themselves should they require services during their lifetime.

Among the benefits we hoped to see was a healthier population and a reduction in the waiting lines for institutionalized care, or at the very least slowing down the time it took for someone to get there.

Although The Class Act was part of the PPACA, many were wildly skeptical about the program from the start.  In large part, many could not agree on the premium payments and thought the estimates that were being used were far too low.  President Obama agreed and suspended the program before its scheduled January 1, 2011 start date.  The last round of fiscal cliff negotiations leading to the American Taxpayer Relief Act of 2012 removed The Class Act language contained in the PPACA altogether.

So, now what do we do?

During the fiscal cliff talks, it was realized that we shouldn’t just bury The Class Act without real discussions regarding the issues facing long-term care providers.  Senator Jay Rockefeller, West Virginia, recommended a Long Term Care Commission be established to address the challenges facing the long-term care workforce and the pressures confronting the industry.

Specifically, the panel will study and make recommendations regarding the following industry matters:

  • The role of Medicare, Medicaid, Private Insurance and their interaction in the work place as funding mechanisms
  • Improvements in existing programming to ensure the existence and future of long-term care providers
  • Methods of proper training and best practices to develop the workforce to ensure a high quality care delivery system is in place
  • Study gaps and make recommendations in light of federal and state structures that prevent high quality care delivery systems

The 15 member panel, assembled with three picks each from the President, the Senate majority and minority leaders, and the House speaker and minority leader, is scheduled to report back to the government with legislative and administrative actions and is then expected to introduce bills in both houses of the Congress within six months of being seated.

To say that this is a major task is an understatement.  However, it is important and vital work for the long-term care industry and must be done.  The financial viability of long-term care’s future is riding on it.

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