Health Care Reform: Could This Get Any More Interesting?

1. Health Care Reform:Could This Get Any More Interesting? The Paul Merage School of Business, UC IrvineIrvine, CaliforniaFebruary 25, 2010 Dean A. Rosen, Partner

2. Democrats Caught Off Guard in Mass: Lose 60 Seat Senate Supermajority

4. Four Federal Health Care Reform Goals

5. Building Blocks of Democrats’ 1993-1994 Health Reform Strategy Delay Reform Until Second Session of Congress Congressional Committees Vying For Pole Position Congress Reacts to Administration Legislative Proposal Prioritize Economy Engage Natural Allies, Fight Business, Insurance, Pharma Reach out to GOP Moderates, But Be Prepared To Go It Alone White House Is Lead Legislative Drafter As Well As Sales And Marketing Dept.

6. New & Improved? Democrats’ 2009-10 Health Reform Strategy Most Importantly:Stick to Speedy Timetable Congressional Committees Cooperate Closely Congress Takes Lead In Crafting Legislation Link Health Care Reform to Economic Recovery Engage Stakeholders, But Demonize Insurance Industry Reach out to GOP Moderates, But Be Prepared To Go It Alone Provide White House Political Air Cover

7. GOP Positions On Health Reform • House GOP Proposal Key Elements • Medmal reform • Insurance reform • Small business purchasing • Cross-state insurance sales • High-risk pools • State innovation funding • HSA expansion/tax credits • Anti-fraud and abuse Major Fault Lines • Individual & Employer mandate • Medicaid expansion • Public plan • Medicare cuts • Overall cost • Tax increases Step-by-Step Incrementalists Budget Hawks/Fiscal Conservatives Expansive Reformers, relying on market forces, individual choices Moderates, willing to compromise

8. Health Spending Will Nearly Double Over the Next Decade, Rising to Over 20 Percent of GDP by 2016 5.0 National Health Expenditures 4.5 Actual Projected 4.0 3.5 3.0 Dollars in trillions 2.5 2.0 1.5 1.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2104 2015 2016 2017 2018 2019 Source: Centers for Medicare & Medicaid Services, Office of the Actuary, February 2010

9. Will President Obama’s Plan Bend the Health Care Cost Curve? $13.2B net savings from Title III of Senate health reform bill, “Improving Quality and Efficiency of Health Care” -- Congressional Budget Office Letter from Douglas W. Elemendorf to the Honorable Harry Reid, December 19, 2009 “CBO and JCT estimate that the average premium per person covered for new nongroup policies would be about 10 percent to 13 percent higher in 2016… The legislation would have much smaller effects on premiums for employment-based coverage.” -- Congressional Budget Office Letter from Douglas W. Elmendorf to the Honorable Evan Bayh, November 30, 2009

10. Vast Majority of Savings in Senate/President Obama’s Health Plan Result from Tax Hikes and Health Care Program Cuts $460B New Tax Revenue • $149B from 40% excise tax on cadillac plans • $87B from .9% Medicare payroll tax increase • $100B from new fees on pharma, medical devices, health health insurance • $2.6B for CER (includes insured and self-insured) • $15B from raising AGI floor on medical expenses to 10% • $18B from limiting FSAs to $2,500 (indexed to CPI) and limiting over-the-counter reimbursements from HSAs, FSAs and MSAs • $2.7B for excise tax on indoor tanning • $5.4B from eliminating Part D corporate deductibility • $17B in non-health tax compliance provisions $483B Medicare/Medicaid Payment Reductions • $147B hospital market basket reductions and productivity adjustments • $43B MC and MA DSH cuts • $39B home health • $120B Medicare Advantage reductions • $25B Medicare Part B premium • $11B Medicare Part D premium • $38B Medicaid Rx rebate • $28B Independent Medicare Commission • $72B CLASS Act • $7.1B Follow-on Biologics • $6.4B Medicare and Medicaid fraud and program integrity CBO Letter from Douglas W. Elemendorf to the Honorable Harry Reid, December 19, 2009

11. The Way Forward: Five Options for Health Care Reform House Passes Senate Bill with Reconciliation “Sidecar” House Passes Senate Bill without Reconciliation Conference Committee Negotiates Compromise Bill Incremental Bill or Multiple Bills Health Reform Dies • Pros: • Comprehensive bill passes with core Dem/Obama principles • Congress can address jobs and other higher political priority issues • Cons: • Dems vote on unpopular bill, with no bipartisan cover • House must swallow entire Senate bill with no imprint • Pros: • Opportunity to pass comprehensive bill with core principles in tact • Cons: • Whether or not GOP involved, still working off bills with perceived flaws, instead of “starting over” • Negotiation could take months, re-open scores of issues and not result in ultimate compromise • Pros: • Highlights popular reforms • Dems could demonstrate they’ve heard voters’ and may garner some bipartisan cover • Cons: • No guarantee bill passes • May not have desired policy impact • Continues unpopular reform discussion • Does not fire up base Dem voters • Pros: • Opportunity to start over and turn to more pressing issues • Perhaps blame GOP for failure • Cons: • Demonstrates lack of effectiveness, despite large Democratic majorities • Demoralizes Democratic base • Pros: • Comprehensive bill passes with core Dem/Obama principles • Congress can address jobs and other higher political priority isues • Cons: • Dems vote on unpopular bill, with no bipartisan cover • Fast-track procedures reinforce concern about backroom deals and lack of transparency

12. Threat of Terrorism Situation in Afghanistan The Economy Health Care Federal Budget Deficit +13% +5% -5% -8% -18% 56% 55% 52% 52% 50% 47% 45% 44% 42% 38% Approve Disapprove President Obama Receives His Lowest Approval On Health Care and the Deficit Do you approve or disapprove of the way Barack Obama is handling... Data from a Washington Post/ABC poll of 1,083 adults, conducted January 12-15, 2010.

13. 51% 49% 44% 42% 38% 37% 29% 29% 27% 17% 16% 5% The Economy Health Care Afghanistan Climate Change & Global Warming Majority of Voters Now Believe The President is Paying Too Little Attention to the Economy, butToo Much Attention to Health Care Reform Perceived Attention To Issues From President Obama Too Much Attention Too Little Attention Right Amount of Attention ^NBC/WSJ January 2010 For each of the following issues, please tell me if you think Barack Obama is giving too much attention to this issue, too little attention to this issue, or the right amount of attention to this issue

14. In Summary……

15. Despite the Outcome of the Massachusetts Senate Race and Other Political Setbacks . . .

16. President Obama and Democratic Leaders Intend to Press Ahead with Major Reform

17. But the Political Climate is Toxic in This 2010 Mid-Term Election Year

18. Leaving the Outcome of the Health Reform Debate and its Ultimate Impact . . .

19. Health Care Reform:Could This Get Any More Interesting? The Paul Merage School of Business, UC IrvineIrvine, CaliforniaFebruary 25, 2010 Dean A. Rosen, Partner