A 2013 REPORT CARD ON HEALTHCARE REFORM ACCOMPLISHMENTS

1. A 2013 REPORT CARD ON HEALTHCARE REFORM ACCOMPLISHMENTS • Healthcare Landscape before Affordable Care Act (PPACA) • Summation of initial accomplishments of PPACA • Summation of looming challenges to be confronted by PPACA • Main Provisions of law become effective January 1, 2014 & January 1, 2015

2. BEFORE THE AFFORDABLE CARE ACT BENEFITS BEGAN PHASE IN • 60 million uninsured persons for a minimum of three months • 48 million of the 60 million were uninsured for the entire year • Persons with preexisting conditions were particularly hard hit • More bankruptcies in America due to uncovered healthcare costs than any other cause(s) of insolvency • 55% of employers providing health insurance in 2011 v 91% in 1972

3. TYPICAL HEALTH BENEFIT PAYMENTS UNDER EMPLOYER BASED SYSTEM • Total benefit payments accounted for 70-90% of premiums • Claims Breakdown for a typical insured group • 500 of 1,000 insureds=no claims/policy year • 375 of 1,000 insureds=payments of up to $500/yr • 2 of 1,000 insureds=payments of >$10,000/yr • Overall Average Cost of Claims per insured = $560 per policy year (not including shock losses)

4. OPERATIONAL EXAMPLE OF EMPLOYER BASED GROUP COVERAGE • 1,000 INSUREDS @ FOLLOWING PREMIUMS • Employee only =$120/month@400 lives= $48,000/month • Employee + 1 or more lives=$350/month@600 lives=$210,000/month • Total premium/month=$258,000 x 12 months= $3,096,000 annualized • Average of claims= $560 x 1,000 employees= $560,000/year before shock losses • Two shock losses of $1,000,000 + $500,000=$1.5m

5. OPERATIONAL EXAMPLE EMPLOYER BASED GROUP COVERAGE (2/2) • Sub total = $3,096,000 minus $560,000 minus $1,500,000= $1,036,000 surplus to cover other operating expenses such as cost of reinsurance (stop loss coverage), admin overhead, acquisition costs (commissions + marketing fees + bonuses for executives & producers) • Operating Expenses = 20% of total premiums =$619,200 • $1,036,000 – $619,200=$416,800 pre tax surplus =13.5% • After tax profit=$416,800 x .61=$254,248 • Return on total premium to insurance co.=8%

6. (1) Expanded Coverage (2) Preventive Care • Since 2010 family coverage now includes dependent children up to age 26 • 6.6 million children ages 19-25 are on parents’ plans • Free Preventive Care w/o deductibles or co-pays • 71 million Americans have received at least one preventive service • 34 million Senior Citizens have received at least one preventive services

7. (3) Children with Preexisting Conditions (4) Adults with Preexisting Conditions • 17 million children have been protected against being uninsured • More than 107,000 adults have joined a federally run insurance plan for people with pre-existing conditions • Law precludes cancelling policies for preexisting conditions • Previously at least 10,000 people per year lost coverage

8. (5) Law Requires & Funds Additional Community Health Centers • PPACA appropriated $11B over 5 years to build & operate community health centers • This shall increase patients served from 18 million per year to 21 million per year • PPACA also placed $5B in a reinsurance program that encourages employers to retain coverage for retirees & families • 19 million people have benefited with reduced premiums or cost sharing

9. (6) Private Insurers Must spend 80-85% of Premium Revenues on Medical Claims or Quality Improvements • In 2012 $1.1B was returned to policy holders in rebates • Average of $151 rebate per family • Rate Increases of 10% or more for people buying their own policies must receive Federal approval • Proportion of rate increase filings decreased from 75% in 2010 to 34% in 2012 • Average premium increase 30% lower in 2012

10. (7) Prescription Drug Discounts to Medicare Beneficiaries (8) Reigning in Health Care Costs • More than 6.3 million older and disabled Americans have saved money • More than $6.1B saved on prescription medications • Sharp declines annual growth of healthcare spending • Providers may be acting more frugally • Reduction in overpayments to Medicare advantage programs • Medicare Advantage premiums have decreased by 10% & enrollments have risen by 28% since passage of PPACA

11. (9) Open Enrollment in Health Insurance Marketplace; (10) Increased Medicaid Payments for Primary Care Physicians • Open Enrollment in Marketplace is making coverage available to previously difficult to place risks, despite enrollment difficulties • Requires States to pay Medicaid Providers 100% of Medicare Rates for Evaluation & Management + Vaccine Administration Services for Medicaid recipients, thereby increasing the incentive of availability of more primary care providers

12. Focus of PPACA Clearly is on Improving Quality • Percentage of Medicare Patients requiring re-admission to hospitals within 30 days of discharge dropped from 19% over past five years to 17.8% during first half of 2012 ($650B x .012=$78,000,000) • Due to penalties imposed by Medicare for poor performance (Present on Admission Standards) • Also due to financial incentives encouraging better coordination of care during transition period (Present on Admission Standards) • ACO Experiment could transform healthcare in U.S. • Encourages coordination of care + lowering of costs

13. LOOMING CHALLENGES • Implementation of Insurance Exchanges -not all states on-board -36 states using Federal Exchange -14 states have insurance exchange (2) Inauguration of the Individual Mandate -oversight by IRS (3) Delayed Implementation of Employer Mandate -oversight by IRS (4) Politics -delay of employer mandate opened door to efforts to reverse program

14. GRADING PPACA • PARTS OF LEGISLATION IMPLEMENTED THROUGH 2012= GRADE OF A • INSURANCE EXCHANGESCONCEPTUALLY MERITS GRADE OF B; Roll out merits mid term grade of F thus far • ON SOON TO BE IMPLEMENTED EMPLOYEE MANDATE= GRADE OF C+ ; Roll out merits a midterm grade of F • PENALTY FOR NOT ENROLLING LAUDABLE BUT TOO MODEST • DELAY OF EMPLOYER MANDATE MERITS GRADE OF F • OPENED DOOR FOR CONGRESSIONAL GAMESMANSHIP • THREAT TO DEFUND ACA ENCOURAGED BY THE ADMINISTRATION’S TIMIDITY ON EMPLOYER MANDATE IMPLEMENTATION

15. Grading PPACA (continued) • Roll Out of the Insurance Exchanges for first grading period = grade of F • Remains to be seen if ship can be righted • President has been portrayed as disengaged & uninformed • Congress has been portrayed as obstreperous • President & Congress awarded mid term grades of F for their intransigence & damaging behavior

16. WHAT ABOUT THE FUTURE? • Administration cannot rely on Contractors to do the right thing • Must ‘get hands dirty’ & take charge of the roll out process • Must hold contractors, HHS leadership, & CMS Leadership accountable • Changes in top level Federal executives will be necessary if current corrections to roll out do not result in material progress

17. What about the future? • High Stakes-a failure to show firm leadership now could result in a loss of confidence in the workability of the new law • Fortunately, despite a majority of Americans opposing what they call ‘Obamacare’ a large majority support all but one of the elements of the Patient Protection & Affordable Care Act—one in the same! • Only element of ACA not supported = Individual Mandate

18. CONFOUNDING AMERCAN OPINIONS REGARDING PPACA • Health Insurance Exchanges=79%+ • Subsidy to those in need=71%+ • Medicaid Expansion=69%+ • Employer Mandate=61%+ (includes penalty for non-compliance) • Individual Mandate=67%- (with penalty for non-compliance) + = favorable - = unfavorable