Context for Reform

1. Presentation to Northeast Ohio HFMAHealth Reform, Modeling Coverage, Consumer Survey & The Deloitte Center for Health SolutionsJuly 28, 2011Kenneth H. Weixel Partner U.S. Health Sciences Leader Deloitte & Touche, LLP

2. Context for Reform

3. Context: The "five big bets" in ACA… • Will the uninsured and Medicaid newly eligible enroll? Will the insurance market expand by 32 million? • Will employers drop health benefits after 2016 to facilitate direct consumer engagement and reduce operating costs? • Will states be able to manage new expansion responsibilities and obligations? • Will delivery system reforms – such as accountable care organizations, value-based purchasing, medical homes, bundled payments – reduce costs over time? • Will evidence-based medicine/comparative effectiveness be implemented in such a manner as to be effective in coverage decisions, widely used in practice, and understood by consumers?

4. Context: Many laws comprise legislation to reform the payment and delivery systems over a decade Its implementation will span five election cycles and occur simultaneous with efforts to reduce the federal deficit, restore economic growth, and reduce unemployment Economic Recovery, Clinical Innovation, Demand 2014 - 2016 2010 - 2013 2017 + Rules, Regulations & New Funding Mandates, Pilots & Exchanges “New Normal” Insurance compliance: MLR, premiums, coverage Coordination: state-federal governments, agencies Rules, guidelines, task forces, agencies Excise taxes—insurance, medical devices, drug companies • Individual mandate • Health exchange • Employer pay or play • Demonstration/pilot programs: • Accountable care organizations • Value-based purchasing • Episode based payments • Medical home Physician-hospital alignment Industry convergence Convergence: Public health & delivery system Volume to value ICD-10, Electronic Medical Record, Comparative Effectiveness implementation

5. Context: Consumers are satisfied with the health system but… How will reform impact consumer satisfaction? How will consumer satisfaction impact the system?

6. Context: Changes to the delivery, payment systems are substantial • Delivery system changes • Incentives change from volume to value • Increase integration of physicians, hospitals and long term care providers • Increased convergence of public health services and local delivery systems • Increased coverage of practice with evidence • Insurance system changes • Elimination of pre-existing condition, lifetime and annual limits for insurance plans • Required coverage of preventive health serviceswithout co-payments • Creation of health insurance exchangesin each state to facilitate access to affordable insurance and manage subsidized purchases by individuals and employers • Federal-state regulationof insurance plan coverage, premiums, and medical expenditures Consumerism Preventive health, individual insurance, PHR Primary Care 2.0 Home monitoring, retail medicine, LTC, medical homes, scope of practice expansion, health coaching Comparative Effectiveness/EBM Personalized medicine, bundled payments, provider adherence/performance-based payments liability reforms Health Information Technology EHR (HiTech), health information exchanges, fraud detectionadministrative simplification, clinical data ware-housing, ICD-10, direct to consumer e-medicine

7. Context: Many ACA provisions for insurance industry reform have already been implemented 2010-2012 2018 2014

8. Context: The "five big bets" in ACA… • Will the uninsured and Medicaid newly eligible enroll? Will the insurance market expand by 32 million? Will the insurance market expand to offset the new plan excise taxes, increased costs of underwriting, and required coverage? Will there be appropriate medical resources and capacity to treat this population? • Will employers drop health benefits after 2016 to facilitate direct consumer engagement and reduce operating costs? Will employees purchase through the exchanges or go without? Will employers in targeted industries exit benefits? Will insurance companies successfully transition to a retail/individual market? Should plans compete in the individual market at all? How should plans mitigate new employer need for workforce sustainability? • Will states be able to manage new expansion responsibilities and obligations? Is there an opportunity in managed Medicaid? How likely are states to compete via state run co-ops? Will states successfully operate exchanges? How will competing plans respond to the new normal? • Will delivery system reforms – such as accountable care organizations, value-based purchasing, medical homes, bundled payments – reduce costs over time? Is physician-hospital integration likely to commoditize plans or shift leverage to providers? • Will evidence-based medicine/comparative effectiveness be implemented in such a manner as to be effective in coverage decisions, widely used in practice, and understood by consumers? Can the US system make the transition from volume to outcomes based on scientific evidence?

9. Modeling Coverage: Our Methodology & Scenarios

10. Methodology: Considerations in evaluating the impact on health insurance coverage • There are many uncertainties regarding economic, behavioral, political, and strategic events • ACA insurance coverage results at the end of the decade is based on the impact of many different variables • Such as the cost of ACA,* rate of health care inflation, implementation of the law (e.g. delays, changes in penalty levels), design and operation of exchanges, and employer coverage decisions • Deloitte modeled four likely scenarios to examine their impact on insurance coverage** • Scenario A – “Intended results“: Baseline • Scenario B – “Unintended results”: Employers drop coverage • Scenario C – “Unintended results”: No individual penalty • Scenario D – “Unintended results”: Delays/changes to original legislation * Changing understanding of the cost of ACA. ** In this report, “Other Coverage” (TriCare, etc) has been omitted because it is negligible.

11. Methodology • Deloitte’s Health Reform Impact Model assesses the impact of key economic, behavioral, political, and strategic variables on insurance coverage under ACA • Uses extensive underlying data and robust assumptions of future events to produce 10-year (2011-2020), annual projections of market configuration in terms of insured (by health insurance market segment) and uninsured • Uses the most recent datasets available • Such as data on demographics, socioeconomics, state regulatory environments, and medical costs and premiums • Customizable/flexible by national or state, regional, and potential scenarios to estimate sensitivity to specific actions and reactions of market players • Assesses impact on multiple sectors: Focused on health plans, but has applications for state and Federal government, health care providers, and suppliers • Scenario A – “Intended results“: Baseline is the interpretation of the economic environment and provisions of ACA anticipated to occur per government and trade consensus reports • Economic recovery by 2015; stable thereafter • Strong exchanges, but with lightly slower conversion from traditional markets • Majority of individual market moves into exchange where there are attractive provider rates • Small business exchanges (SHOP) don’t allow large employers to participate. However, slightly slower conversion to exchange from traditional markets • 2% of large and 5% of small employers drop coverage (where large employers are defined as those with more than 2,500 employees) • Premium subsidies adequate to encourage enrollment • “Physician fix” continues indefinitely • Moderate shift to Managed Care in Medicaid • Additional scenarios evaluate variables that drive results

12. Key Results • Uninsured declines from 54 million in 2011 to 34 million in 2020 • Decrease of 23 million in group (excluding SHOP) between 2011-2020, but employer sponsored coverage remains the largest percentage of coverage (44% in 2020) • Employers shift toward administrative services only (ASO) contracts • Exchanges (HIX) grow to 27 million by 2020 • 88% purchase on exchange • Increase of 12 million in Medicaid between 2011-2020 due to expanded eligibility • Increase of 15 million in Medicare between 2011-2020 as population ages Scenario A – “Intended results”: ACA is implemented without major changes or surprises • Scenario A – “Intended results“:Baseline • ACA implemented primarily per the law • Medicaid expansion occurs • Strong exchanges • 2% of large1 and 5% of small employers drop coverage 1Large employers are defined as those with more than 2,500 employees

13. Key Results • When 25% of large and 50% of small employers drop ESI4 (scenario B3), group (excluding SHOP) decreases 50% (net decrease from scenario A of 53 million) in 2020 • HIX total 65 million (net increase from scenario A of 38 million) • Uninsured remains flat at 53 million (net increase from scenario A of 18 million) in 2020 Scenario B – “Unintended results”: Employers drop coverage when exchanges are operating, driving individuals into exchanges/uninsured • Scenario B – “Unintended results”: Employers drop coverage • ACA implemented primarily per the law, Medicaid expansion entrenched, strong exchanges, and higher rates of employers dropping coverage (due to high medical cost trends, availability of guaranteed issue coverage in individual markets, and the impact of the Cadillac Tax) • B1: 5% of large3 and 10% of small employers drop coverage • B2: 10% of large3 and 25% of small employers drop coverage • B3: 25% of large3 and 50% of small employers drop coverage 3Large employers are defined as those with more than 2,500 employees 4ESI: employer sponsored insurance

14. Key Results • When there is no individual penalty, uninsured total 44 million (net increase from scenario A of 9 million) in 2020 • HIX total 23 million (net decrease from scenario A of 4 million) in 2020 • Healthier individuals do not purchase (no penalty) and unhealthier individuals remain • Group (excluding SHOP) totals 124 million (net decrease from scenario A of 4 million) in 2020 Scenario C – “Unintended results”: Individual penalty goes away and markets respond • Scenario C – “Unintended results”: • No individual penalty • ACA implemented primarily per the law, but no individual penalty

15. Scenario D – “Unintended results”: Exchanges and mandates are delayed until 2016, penalties are tripled to discourage employer exit from coverage Key Results • When the individual penalty is tripled (scenario D1) • HIX total 31 million (net increase from scenario A of 4 million) in 2020 • Uninsured total 29 million (net decrease from scenario A of 5 million) in 2020 • When the employer penalty is tripled (scenario D2) • Group (excluding SHOP) totals 132 million (net increase from scenario A of 4 million) in 2020 • HIX total 24 million (net decrease from scenario A of 3 million) in 2020 • When penalties tripled and delays occur (scenario D3) • Group (excluding SHOP) totals 133 million (net increase from scenario A of 4 million) in 2020 • Uninsured total 29 million (net decrease from scenario A of 6 million) in 2020 • Scenario D – “Unintended results”: Delays/changes to original legislation • Due to political or technical reasons, exchanges and mandates are delayed until 2016. In order to realize the goal of expanded coverage, Federal government steps in and increases penalties in order to get those who are not participating to do so – individuals to gain coverage and employers to offer benefits. Assumed that exchanges only fully become operational and strong by 2016 • D1: Individual penalty tripled (to 3% of income from 1%) and faster phase-in (to 2 years from 3) • D2: Employer penalty tripled (to $6,000 from $2,000) • D3: Combination of C1 and C2 with exchanges and mandates delayed until 2016

16. Summary: Insurance coverage scenarios Projected enrollment in millions (% of total) in year 2020 under scenarios A-D Note: Not all numbers add due to rounding.

17. Consumer Survey Highlights

18. 2011 Survey of Health Care Consumers • Module 1: Consumerism in the Provider Sector Framework Methodology • Conducted annually since 2008 • Seeks to provide a comprehensive view of health care consumerism • Explores consumer’s behaviors, attitudes, and unmet needs in six areas: • Total sample: 4,000 adults surveyed in April 2011 using a web-based questionnaire • Results weighted to assure proper proportional representation to the nation’s population with respect to age, gender, income, race/ethnicity, and geography • +/- 1.6% margin of error at the .95 confidence level for U.S. estimates • Survey consisted of 50 questions, with 26 potential follow-up questions • Comparisons are made to results from Deloitte’s previous health care consumer surveys (2008, 2009, 2010)

19. 2011 Survey of Health Care Consumers • Module 1: Consumerism in the Provider Sector 15,735 consumers were surveyed in 12 countries Canada Europe USA China Mexico Brazil Belgium France Germany Luxembourg Portugal Switzerland UK 18

20. Context: Views of the Health Care System Report card grades of system performance vary widely: 8% to 69% give their system an “A” or “B” Module 1: Consumerism in the Provider Sector

21. Context: Views of the Health Care System Dissatisfaction is widespread: only 7% to 41% are satisfied with their system’s performance Module 1: Consumerism in the Provider Sector

22. Information Access Consumers, especially those in Generation Y, are increasingly using online resources to assess provider quality and cost information • 28% say they searched online for information about the quality of care provided by a primary care physician or medical specialist (24% in 2010, 27% in 2009) • One in five (19%) reports searching online for information about the costs of services, up from 12% in 2010 and 13% in 2009 • Searching for provider quality and cost information is most common in the youngest generation, and declines with age: Generation Y (34% for quality information and 30% for cost information), Generation X (33% and 24%), Boomers (24% and 13%), and Seniors (19% and 5%) Module 1: Consumerism in the Provider Sector

23. Information Access Over half U.S. consumers (52%) say they would use a smart phone or PDA to monitor their health Module 1: Consumerism in the Provider Sector • Over half (52%) say they would use a smart phone or PDA to monitor their health if they were able to access their medical records and download information about their medical condition and treatments • Interest is highest among the youngest consumers and declines with age: Generation Y (72%), Generation X (62%), Boomers (41%), and Seniors (26%)

24. Information Access Interest in using electronic health technologies for coordinated care with physicians or self-monitoring is high • Six in ten (61%) express interest in using a medical device that would enable them to check their condition and send information to their doctor electronically through a computer or cell phone via the Internet, down from 68% in 2009 • Last year, U.S. consumers went online to: • Purchase merchandise (90%) • Personal banking (84%) • Travel (65%) Module 1: Consumerism in the Provider Sector Most shop or bank online but few use online services for information on health care

25. Information Access Consumers continue to see value in the use of personal health records for themselves and providers, but use is low and concern about privacy and security is significant • The percentage of consumers who maintain a personal health/medical record (PHR) remains low, but is increasing gradually: 8% in 2008, 9% in 2009, 10% in 2010, and 11% in 2011 report maintaining a PHR • Two in three (66%) say they would consider switching to a physician who offers access to medical records (similar percentages were reported last year) • Four in ten (39%) express concerns about the privacy and security of their health/medical information Module 1: Consumerism in the Provider Sector

26. Information Access 4 in 10 (39%) express concern about the privacy and security of their health/medical information when using computer and Internet technologies Module 1: Consumerism in the Provider Sector

27. Traditional Health Services Poor quality of care and service, as well as cost and insurance changes, prompt decisions to switch doctors • 15% of all consumers say they switched doctors in 2011, similar to 13% in 2010 and 16% in 2009 Module 1: Consumerism in the Provider Sector

28. Traditional Health Services Three in four hospital users select hospitals based on insurance coverage, but reputation, recommendation, and specialization are also important • Insurance coverage, reputation, physician referral, and specialization are the most important factors consumers consider when selecting a hospital, similar to 2010 and 2009 Module 1: Consumerism in the Provider Sector

29. Traditional Health Services Consumers are receptive to retail clinic use for minor medical problems • One in five (19%) report seeking care for a non-emergency health problem at a walk-in clinic located in a pharmacy, grocery store, or other retail setting in the last 12 months; this is higher than in previous years (15% in 2010 and 13% in 2009) • 37% say they would use a retail clinic if it cost them less than visiting a doctor’s office (up from 30% two years ago), and 34% say they would use a retail clinic if doing so reduced their wait time (higher than 28% two years ago) Module 1: Consumerism in the Provider Sector

30. Alternative Health Services Consumers are open to alternative treatment approaches and consulting alternative health practitioners Module 1: Consumerism in the Provider Sector

31. Health Policy Consumers acknowledge that the U.S. system has the latest technologies, but poor access to service, and lack of focus on wellness and patient-centered care, are its greatest weaknesses • More than three in five give favorable grades to the technology (77%), medical innovation (67%), and facilities and equipment (62%) available • Less than half (48%) grade the availability and convenience of services favorably, and even fewer (35%) give wait times an “A” or “B” • Failure to focus on patient-centered care and wellness are also sources of dissatisfaction, with 3 in 10 (31%) giving each of these a grade of “D” or “F” Module 1: Consumerism in the Provider Sector

32. Health Policy Consumers want reform efforts to address costs, quality, and access • More than three in five give favorable grades to the technology (77%), medical innovation (67%), and facilities and equipment (62%) available in the US health care system • Increased access to insurance and primary care are the most commonly expected impacts of the new health reform law: 58% and 49%, respectively, believe the law will have a positive impact Module 1: Consumerism in the Provider Sector

33. Health Policy Consumers believe that the current health care law will improve access more than costs and quality and sense that improvements will take time • As a result of the new health reform law, 44% anticipate improvements for consumers are likely to happen within the next five years, while 24% believe improvements will be felt over five years into the future. 1 in 3 (31%) doubt improvements for consumers will ever happen • Nevertheless, 55% believe it is possible to improve quality and reduce costs simultaneously in the current system of care Module 1: Consumerism in the Provider Sector 32

34. The Deloitte Center for Health Solutions

35. Research overview – FY11 and FY12 Major Research Studies • Released • Coverage Model (Dbrief webcast) (July 2011) • Survey of Health Care Consumers – U.S. and Global (June 2011) • The hidden costs of U.S. health care for consumers: A comprehensive analysis (March 2011) • Upcoming • Survey of Health Care Consumers: • Individual country reports (est July – September 2011) • Additional sector and other reports (ongoing) • Physician Survey (est September) • Employer Survey (est December) Pulse Surveys • Released • Consumer Pulse Survey: Health Reform (November 2010) • Consumer Pulse Survey: Health Reform (June 2010) Issue Briefs • Released • Comparative Effectiveness Research in the United States: Update and implications (June 2011) • Value-based Purchasing: A strategic overview for health care industry stakeholders (March 2011) • Privacy and Security in Health Care: A fresh look (February 2011) • Physician Workforce: Opportunities and challenges post-health care reform (October 2010) • The Medical Home 2.0: The Present, the Future (September 2010) • The Mobile Personal Health Record: Technology-enabled self-care (August 2010) • Social Networks in Health Care: Communication, collaboration, and insights (July 2010) • Medicaid Long-term Care: The ticking time bomb (June 2010) • Upcoming • The Fiscal Impact to States of the Affordable Care Act (ACA): Comprehensive Analysis (est August 2011) • Impact of Health Reform on the Individual Insurance Market (est August 2011) • Primary Care Today and Tomorrow (est August 2011) Module 1: Consumerism in the Provider Sector

36. Conclusions

37. Conclusions Considerations in looking to the future… • The employer exit from coverage after 2016 and success of state health insurance exchanges will impact the future of insurance coverage substantially • Each sector in health care is impacted by changes in insurance coverage • High likelihood of changes to ACA individual/employer penalties • Federal lawmakers might enact legislation to discourage employers from dropping coverage • States might implement substitutes for the individual mandate that would increase enrollment for younger eligibles

38. Implications: Impact for key stakeholders are significant and widespread

39. Q and A

40. Contact info Ken Weixel Partner Deloitte & Touche LLP kweixel@deloitte.com +1 614 229 5920 Paul H. Keckley, PhD Executive Director Deloitte Center for Health Solutions pkeckley@deloitte.com +1 202 220 2177