Closing the Tax Gap: It Beats Raising Taxes

Last year’s Capitol Hill battles over reducing federal budget deficits and our $15 trillion public debt centered around rival plans either to cut government spending or raise taxes.

Democrats and Republicans presented the issue as a stark binary choice: cut government entitlements like Medicare or increase income taxes. No wonder the Congressional “Super-committee” failed to reach consensus.

Now comes word from IRS, on January 6, 2012 to be exact, that there’s a third choice: close what’s known as the “Tax Gap.”

IRS defines the “gross tax gap,” $450 billion in tax year 2006 (the latest year for which data are available), as “the amount of true tax liability faced by taxpayers that is not paid on time.” Subtracting out subsequent voluntary or involuntary tax collections yields an estimate of the “net tax gap,” or the “amount of tax liability that is never paid” — a whopping $385 billion in 2006 alone!

While obviously easier said than done, more aggressive efforts to close this gap would alleviate pressure to reduce budget deficits either by cutting spending or raising taxes.

As part of its analysis IRS offers a fascinating chart, distinguishing among three components of the gross tax gap: non-filing, underpayment and under-reporting, with the latter accounting for fully 84% of the total gap. (Tax Gap Map)

Of the total under-reported tax of $376 billion, 63% or $235 billion, is attributable to individual income tax under-reporting, with half of that due to business income tax under-reporting of $122 billion in 2006.

Summing up, the heart of the tax noncompliance problem appears to be not with non-filing ($28 billion) or underpayment ($46 billion) of taxes due, though these amounts are still mammoth, but with under-reporting; and not of employment taxes ($72 billion) or corporate income taxes ($67 billion) but of individual income taxes, particularly business income taxes. Moreover, IRS estimates that between 2001 and 2006 the under-reporting portion of the gross tax gap exploded by 32%, meaning that more and more taxpayers were under-reporting their tax liability.

The good news is that voluntary tax compliance is at an all-time high—about 85%. The bad news, of course, is that this means, according to IRS, that almost 15% “of the estimated total tax liability for 2006 will never be paid.”

What can be done to reduce the size of the tax gap? The answer, says IRS, is that “compliance is far higher when reported amounts are subject to information reporting and, more so, when subject to withholding.” In other words, as President Reagan famously said of a pending nuclear weapons treaty with theSoviet Union, “Trust, but verify.”

 Commenting on the IRS report, Senator Max Baucus (D-MT), chairman of the U.S. Senate Finance Committee, urged that the tax gap be addressed with reform of the tax code:

“This report shows that closing the tax gap needs to be a major focus of tax reform.  An improved tax code that’s simple and fair to all Americans will help close the tax gap, boost our economy and create jobs. In an era when we’re squeezing the federal budget for every dollar of savings, we have to make every effort to recover these lost funds.”

What are we to conclude about the new tax gap analysis? First, we can wish the news media had given more attention to the January 6 IRS report. Public support for more aggressive efforts to close the tax gap might take some pressure off the alternatives of raising taxes and cutting government spending. That’s not going to happen if the public isn’t better informed about this issue.

Second, we can expect more initiatives to expand the scope of information reporting and withholding as Congress and the IRS step up efforts to collect more of what’s owed and not paid. To be sure, requiring more reporting isn’t popular, as Congress learned when it enacted, and later had to repeal, expanded Form 1099-MISC reporting as part of the 2010 healthcare reform law.

Still, it’s likely that IRS will continue to examine ways to cast a wider net of reporting or withholding over financial transactions in an effort to close what is no doubt now at least a $400 billion annual net tax gap. 

In this electronic age, with our gross public debt now soaring above $15 trillion, or over 100% of GDP, and yearly budget deficits over the next ten years forecast to total more than $4 trillion, it’s in everyone’s interests that the $400 billion annual tax gap be closed. Surely that would be better than raising taxes!

W-2 Reporting of Health Coverage: Additional IRS Guidance

IRS on January 3 issued new guidance to employers on the requirement to report the cost of health coverage on employees’ 2012 Forms W-2. In general the guidance gives employers greater flexibility.

 

Background: The Patient Protection and Affordable Care Act, the 2010 healthcare reform law, requires employers to report the value of employer-sponsored health coverage on employee W-2s for information purposes. There are no tax consequences associated with this mandate.

 

See the Ceridian Human Resources Legislation Blog for November 1, 2011 for details about the earlier IRS guidance (Notice 2011-28) on this requirement.

 

In particular, the 2011 guidance specifies (1) that employers must report both employer costs and employee costs, e.g., the employee share of monthly health insurance premiums; (2) that all health costs that are “non-taxable to the employee” must be reported, e.g., the costs of major medical insurance; and (3) that the reporting requirement applies only to individuals who would otherwise receive a Form W-2, i.e., it does not apply to retirees unless they receive a W-2 for other purposes, such as to report payouts under a deferred compensation plan.

 

The new guidance (Notice 2012-9) clarifies that employers need not report on Forms W-2 the costs of employee assistance plans (EAP), on-site medical clinics or wellness programs, as long as employers do not include these costs in the calculation of COBRA premiums. In some ways the question of possibly having to impute and calculate per-employee costs of EAP and wellness programs for W-2 reporting purposes was one of the biggest concerns of employers with the new reporting requirement.

 

Also excluded from the reporting requirements are vision and dental plans that are excepted benefits under HIPAA (generally with policies, elections and/or premiums that are separate from those of major medical coverage).  Previous guidance used a somewhat different standard for excluding these benefits:  whether the plan was “integrated into” a major medical plan.  

 

For group health plan coverage periods that extend beyond December 31, Notice 2012-9 clarifies that employers may treat all coverage as occurring before Dec 31; treat all coverage as provided in the calendar year after Dec 31; or use “any reasonable allocation method” to allocate costs between the two calendar years. In any event, the coverage method must be applied consistently to all employees.

 

It seems clear from the new guidance and the earlier Notice 2011-28 that employers are not required to report the cost of health coverage on employee Forms W-2 before January 2013—even if an employee terminates during calendar year 2012.

 

Finally, it’s worth reiterating a suggestion made in the November 1 Blog: consider a special communication to employees explaining the number they can expect to see on their 2012 Form W-2 in Box 12 Code DD. Not only is it important for employees to know the full value of their employer-sponsored health coverage; they should also know that the new number has no effect on their tax withholding—at least for now.

Jingle Bells: Congress Approves Two-Month Payroll Tax Holiday

The U.S. Senate and the House of Representatives this morning approved legislation to extend the 4.2% employee payroll tax rate for two months, i.e., until February 29, 2012. The legislation appears to drop a provision in the original Senate-passed bill that would have imposed a special wage cap of $18,350, above which a 6.2% employee payroll tax rate would have applied.

The newly approved measure now goes to President Obama, who is expected to sign it into law shortly.

Capitol Hill Agreement on Payroll Tax Holiday

House Speaker John Boehner (R-OH) announced Thursday afternoon that a deal had been reached on Capitol Hill to extend the 2% payroll tax holiday for the first two months of 2012. If approved by the House and Senate and signed into law, the employee payroll tax rate for January and February will remain at the 4.2% rate that has been in effect for 2011.

In an apparent reference to a wage cap provision in the Senate-passed bill that the National Payroll Reporting Consortium had said would be difficult to implement with so little lead time, Speaker Boehner said that the agreement ensures that “a complex new reporting burden is not unintentionally imposed on small business job creators.”

The House and Senate could approve the new legislation, which extends the payroll tax holiday as well as unemployment insurance benefits and physician Medicare reimbursements, under unanimous consent on Friday, Dec 23, and send the bill to the President for his signature.

Lawmakers have pledged to negotiate in January an extension of the 2% payroll tax holiday for all of 2012.

Payroll Tax Holiday Debate: The Real Issue

Creating even more uncertainty for January payroll taxes, the U.S. House of Representatives today rejected legislation the U.S. Senate had recently approved to extend the 2011 payroll tax holiday for the first two-months of 2012.

Senate Democratic and Republican leaders, unable last week to hammer out a compromise on how to pay for President Obama’s proposed extension of the 4.2% employee payroll tax rate for all of 2012, had negotiated a two-month extension through February 29, assuming that the House would go along and work out a final agreement on a full year extension in February.

Meanwhile, the National Payroll Reporting Consortium (NPRC), a nonpartisan organization of payroll service providers, said the Senate-passed bill might be unworkable as written. The group pointed to a provision in the bill establishing an $18,350 cap on wages to which the 4.2% payroll tax rate would apply during January and February. Wages paid in those months above $18,350 would be subject to a 6.2% payroll tax rate.

In a letter to House and Senate leaders NPRC urged Congress to reconsider the wage cap, saying there was insufficient lead time to program and test payroll systems to implement the $18,350 wage cap. Given the now very short time to implement any change, they advised Congress at this late date to focus on payroll tax rates and not make major changes in withholding requirements.

Today’s acrimonious House debate and vote underscores the wide philosophical chasm that separates Republicans and Democrats over issues of economic policy and federal budget deficits. While media attention has focused on the two-month versus twelve-month debate, the real issue has been and remains how to “pay for” the full twelve month cost of a 2% payroll tax cut: $105 billion.

Republicans and Democrats, including President Obama, almost unanimously agree that new laws must not worsen the federal budget deficit or public debt—which is the sum total of all previous annual deficits. In short, new government spending or tax cuts must be “paid for,” i.e., offset by spending cuts or tax increases elsewhere.

And therein lies the real difficulty Congress faces in extending the 2011 payroll tax holiday through the year 2012: how to pay for it?

First some cost numbers: President Obama’s original stimulus package, proposed in September, included expanded payroll tax cuts for 2012 for both employees and employers, with an eye-popping price tag of $240 billion. Congress balked at the President’s “pay for”—capping individual tax deductions at 28%.

The fallback was a simple extension of the 4.2% employee-only payroll tax holiday for all of 2012 at a cost of $105 billion. Predictably, Republicans and Democrats deadlocked over the pay-for: Democrats wanted to increase income tax rates for high-income households; Republicans wanted to extend a pay freeze on government employees and make other spending cuts.

Complicating matters, Congressional leaders tried to make the one-year payroll tax holiday extension more palatable by packaging it with an extension of unemployment insurance and a delay in scheduled cuts in reimbursements to health care providers under Medicare, the so-called “Doc Fix.” While smart politically, the larger package raised the pay-for stakes to $190 billion, ironically making the climb to consensus even steeper.

Unable to agree on how to pay for the one-year payroll tax break and the other provisions and with the Christmas Holidays looming, Senate Republican and Democratic leaders and the White House did the best they could—they settled for a two-month extension of the 4.2% payroll tax holiday, UI benefits and the “Doc Fix” at a total cost of “only” $32.4 billion. The pay-for was easier too: an increase in fees for Fannie Mae and Freddie Mac housing loans. No controversial tax increases or government spending cuts.

The good news was that payroll tax rates for 160 million workers would not increase to 6.2% in less than two weeks. And that translates into real money: a tax saving during January and February of about $165 for someone earning $50,000 per year; $330 for the $100,000 earner.

But the bad news was continued uncertainty about payroll tax rates. Even assuming the House of Representatives went along with the Senate’s two-month extension, Congress and the President would need to revisit the whole debate again in two months.

Today’s vote shows that Senate leadership assumed too much—the House of Representatives was not prepared to go along with a two-month extension. Indeed, the House earlier in December had voted for a one-year extension of the payroll tax holiday, adding an amendment to force the President to make a go/no-go decision on the Keystone XL oil pipeline project.

Now the House of Representatives and the U.S. Senate have passed conflicting bills: the House version extending the 4.2% payroll tax cut for all of 2012 and the Senate’s extending it for only January and February. If Republicans and Democrats are unable to resolve their differences, especially on the real issue of the “pay for,” the employee payroll tax rate will rise to 6.2% on January 1—in less than two weeks.

No one can predict the outcome of the payroll tax cut debate. Congress could decide to extend the 2011 4.2% tax rate for two months, three months or longer or, if they remain deadlocked, allow payroll tax rates to revert to 6.2% on January 1. We can only hope that Republicans and Democrats, like old Ebenezer Scrooge of A Christmas Carol, will have a change of heart at this special time of year and resolve this issue soon in the interests of 160 million workers and America’s payroll and HR professionals.

Obama urges Congress to extend the payroll tax holiday

In a December 5 White House statement President Obama turned up the heat on lawmakers, saying if the payroll tax holiday is allowed to expire the average American family would see a tax hike of about $1,000. Noting that Democrats and Republicans deadlocked last week over legislation to extend the tax cut for 2012, the president urged Congress to extend the payroll tax holiday to spur economic growth and new hiring.

Payroll Tax Holiday: Congress Dilly-Dallying

Webster’s New World Dictionary defines the word “dilly-dally” to mean “to waste time in hesitation or vacillation.” Whether we use that word or words like procrastinate, dawdle, filibuster or stall, Washington DC is certainly dragging its collective feet on the question of the payroll tax holiday.

The basic issue is whether the one-year 2% employee payroll tax holiday in effect for 2011 will be extended, ended or expanded.

While at least 4 scenarios could play out on Capitol Hill, about one thing we can be certain: the employee payroll tax in 2012 will not revert back to 6.2%. As confident as we can be that the sun will rise in the morning, we can be confident that Congress will not increase payroll taxes in a presidential election year. A 2% “increase” in the payroll tax rate next year would translate into a $900 tax hike for the average household. It’s not going to happen.

So why the delay? What are the likely scenarios? When will all this be resolved?

To answer the last question first, this issue will be resolved by December 16—to give payroll systems time to put new payroll tax withholding in place by January 1, 2012.

Why the dilly-dallying? Perhaps the main reason why this issue is percolating into December is that back in September President Obama proposed, as part of his “Jobs for Americans Act,” not just an extension of the 2011 payroll tax holiday but a major expansion to stimulate the economy.

 

The “Pay-For”—

Further complicating things is that, because annual federal budget deficits are forecast in the $1 trillion range and the government’s public debt has topped out at a record $15 trillion, any tax cut must be “paid-for” by offsetting spending cuts or tax increases. It’s estimated that extending the 2% payroll tax holiday through 2012 would cost the Social Security Trust Fund a minimum of $120 billion—which of course the U.S. Treasury would make up for out of general tax revenue.

President Obama’s proposal to “pay-for” an expansion of the payroll tax holiday by capping income tax deductions at 28% was dead-on-arrival on Capitol Hill, so Congress needs to find some other way to offset the budget impact of any 2012 tax holiday.

 

Competing Scenarios—

What are the possible scenarios that will play out in the next two weeks?

First, President Obama and Congress could agree simply to extend the 2011 2% payroll tax holiday through 2012. This is the most straightforward scenario and, most importantly, insures that worker payroll taxes don’t rise starting on New Year’s Day.

Second, it’s possible that Congress will agree to the President’s September proposal to expand the payroll tax cut to 3.1% instead of 2%.

The two-fold difficulty with expanding the payroll tax cut is that, (1) it requires an even larger “pay-for” since the budget cost could easily reach $150 billion; and (2) it punches a bigger hole in the Social Security Trust Fund, already on shaky solvency ground. It’s also not clear that a 1.1% difference in payroll tax withholding, spread out over perhaps 25 biweekly payroll periods, is going to have much impact on consumer spending.

A third scenario is that the payroll tax holiday, either 2% or 3.1%, could be extended to employers, as President Obama has proposed, in order to encourage new hiring. The President’s proposal was to set the employer Social Security tax at 3.1% for 2012, but only on the first $5 million in wages paid—to target the incentive at small business. In any event, expanding the payroll tax cut to employers significantly increases the cost.

 

Fourth, a new, high-powered employer payroll tax holiday could be enacted, again as the President proposed in September, by creating a special 100% employer Social Security tax “refund” on up to $50 million of increased wages paid in 2012 over 2011, for a maximum employer payroll tax break of over $3 million for 2012. More complicated to administer, a one-year employer payroll tax refund tied to a wage increase ceiling would break new compliance ground and probably put the total package cost in the $250 billion range.

 

A Prediction—

The competing scenarios hopefully explain why Capitol Hill democrats and republicans have delayed action on the President’s proposal to extend and expand the payroll tax holiday. But turning a page on the calendar to the month of December should remind lawmakers that time is running out to decide.

The 2011 holiday was enacted on December 17, 2010—at the “last minute” from a payroll compliance standpoint. It’s now time for Congress to shift from “Park” to “Drive” and resolve this question.

Mindful of the risks to the Social Security Trust Fund and the huge impact even modest payroll tax cuts have on the federal deficit, it’s likely that Congress will be cautious about expanding the Social Security tax holiday; and extra cautious about extending it to employers.

All this suggests that Scenario One above is most likely to play out in the next two weeks. Congress can always surprise; President Obama could insist on 100% of his September proposal—3.1% for employers and employees and a full refund on increased wages up to $50 million. That would be the all-too-familiar gridlock scenario and mean more procrastination.

On the other hand, no one wants payroll taxes to go up starting in January and a reasonable compromise would be to extend existing law for another year. That’s a sensible scenario for the Holiday Season and sure beats endless dilly-dallying.

Employer Health Costs: Silver Lining in the Clouds?

The latest news on employee benefits costs, particularly health costs, is not good. A battery of recent reports confirms that employers saw their costs rise sharply in 2011 and have fastened their seat belts for more of the same in 2012.

First, the annual Kaiser/HRET Survey of Employer-Sponsored Health Benefits found that in 2011 average annual health insurance premiums for family coverage crossed the $15,000 threshold for the first time. Kaiser also found that over the last decade insurance premiums more than doubled, with the employee share of premiums rising by 131%.

Analysts compared health insurance costs to BLS data on prices and earnings and noted that since 1999 health insurance premiums have risen 160% while workers’ earnings have risen only 50%. In other words, health insurance costs are absorbing a greater and greater share of employee total compensation.

Towers Watson promptly echoed the Kaiser/HRET bad news in its own Health Care Trend Survey for 2011. Anticipating how employers might respond to unrelenting health cost pressures the firm forecast that “2012 looks like a year when we will start to see (employee) costs go up primarily via increased premium contributions, with a higher proportion of the increase borne by families.”

Reporting on the Towers Watson survey, Employee Benefit News said two-thirds of employers would increase employees’ share of premiums and 57% of large employers would consolidate plan choices and move to adopt account-based plans.

If we weren’t completely convinced, the National Business Group on Health, a nonprofit association of large employers, surveyed some of the largest corporations in the U.S. and found that they expect their 2012 health benefit costs to rise by 7.2% in 2012. In response employers plan to adopt more aggressive cost control measures, including greater premium cost sharing, higher deductibles and a sharper focus on consumer-directed health plans.

Said association president Helen Darling,

“Employers are facing a multitude of challenges posed by rising health care costs, the weak economy and the financial and administrative impact of complying with the new health reform law. As a result, employers are being much more aggressive in their use of cost-sharing techniques and cost control programs, and are making certain that employees have more reasons to be cost-sensitive health care consumers.”

Finally, the U.S. Department of Labor, in its employment-cost index for the third quarter released in late October, reported that benefit costs in the private sector were up 4% year-on-year, more than double the increase in wages and salaries. The Wall Street Journal concluded that “the more that companies have to spend on benefits, the less take-home pay goes to workers.”

And in a real-world example of how health costs can squeeze employers in a stagnant economy, Wal-Mart announced in October that it would cease offering health coverage to part-timers and increase the share of premiums paid by other workers. With well over 1 million employees the Wal-Mart decision could serve as a bellwether for how other employers respond to health cost pressures.

Notwithstanding the gloomy forecast of higher health costs and a slower economy there may be a silver lining: greater consumer responsibility for health cost management.

As the recent NBGH survey found, nearly three-fourths of larger employers will offer a consumer-directed health plan (CDHP) in 2012, the most common type being a high-deductible plan with a Health Savings Account (HSA).

More and more employers are coming to the conclusion that the most promising avenue for health cost containment is a partnership with employees to share costs and manage coverage decisions, including an emphasis on employee wellness, benefits innovation and health management.

Skeptical that the new healthcare reform law will “bend the cost curve” as advertised, indeed suspecting it could actually put upward pressure on health costs, more employers appear to be giving consumer-directed health a chance.

That silver lining could not only contain health costs but help Americans lead healthier lives.

Healthcare Reform and W-2 Reporting: IRS Provides Details

Just as residents in the path of giant storms try to learn as much as they can about temperature, winds and severity, HR and Payroll professionals are trying to learn as much as they can about the compliance hurricane known as healthcare reform.

We know that the Patient Protection & Affordable Care Act (PPACA) imposes a number of blockbuster mandates, including the employer requirement to provide affordable health coverage (2014), the so-called “individual mandate” to buy health insurance (2014) and a raft of insurance mandates such as extending coverage to adult children and ending annual and lifetime coverage limits.

But there are lesser known mandates as well, including one that was the subject of a great IRS Webinar on Oct 31—the healthcare reform law’s new W-2 reporting requirement.

Effective for 2012 W-2s issued to employees beginning in January 2013, this new mandate promises to be an employer compliance challenge for years to come.

First some helpful websites that explain the requirement in greater detail, including IRS Notice 2011-28 that provides interim guidance to employers on the reporting requirement.

Another helpful link is to the IRS Webinar itself, though that won’t be available for a couple of weeks.

IRS provides some Frequently Asked Questions and Answers concerning the W-2 reporting requirement that employers will also find useful in learning about the new requirement.

In brief, PPACA requires employers to report the cost of coverage under an employer-sponsored group health plan. More specifically according to IRS, employers must report the total cost of all “applicable employer-sponsored coverage” provided to an employee. Applicable employer-sponsored coverage, says IRS, “is coverage under a group health plan that the employer makes available to the employee that is non-taxable to the employee.”

In other words, employers must report on an employee’s Form W-2 for the year 2012 , in Box 12, Code DD, the cost of major medical insurance, mini-med plans, on-site clinics, wellness programs and executive reimbursement plans.

Excluded from the new reporting requirement are contributions to HSAs, employee contributions to FSAs and the costs for items like Long Term Care insurance and stand-alone dental and vision coverages.

The IRS emphasizes that what must be reported includes both employer and employee contributions, including for example, employer and employee portions of major medical insurance premiums.

To be sure, PPACA mandated W-2 reporting is for information purposes only. As IRS puts it, “nothing about the reporting requirement causes or will cause excludable employer-provided health coverage to become taxable.” The idea is to inform employees about the true cost of their health coverage.

Clearly employers have much to do to prepare for this new reporting requirement. They might also consider a special communication to employees explaining the new number that will appear on their Form W-2 for the year 2012 and emphasizing that this is mandated by the healthcare reform law for information purposes only and does not affect their tax withholding in any way.

W-2 reporting of the cost of health coverage is just one more example of the cascade of compliance obligations healthcare reform imposes on employers. So far, at least, employers seem to be handling the mandates that became effective for plan years beginning in 2011.

In 2012 the W-2 reporting mandate will kick in; other perhaps more onerous requirements will take effect in 2013, 2014 and beyond.

There’s no question that healthcare reform represents a compliance hurricane for employers. But by learning as much as we can about these requirements and keeping the lines of communication open to employees, senior management and trusted partners, we can come through the storm unscathed—and compliant.

Healthcare Reform Revisited: HHS Pulls Plug on CLASS Act

Even 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.