Federal Health Care Reform: Sink or Swim? Will There be a Public Plan?

1. Federal Health Care Reform: Sink or Swim? Will There be a Public Plan? Will Employers Pay for Reform? How Will the HR Role Change? This just in …

2. Political Update: Congress: • House compromise bill announced last week of October • $894 B score from CBO; rumors that re-score will exceed $1.2 T; includes strong public option; • Pelosi promises floor debate beginning Nov 5; • Senate compromise bill announced last week of October • surprisingly contained “opt out” version of Public Plan even though Senate Finance Plan did not have one; • floor debate likely to begin around mid-November; • Democratic leadership wants bill finalized by end of 2009; Senate calendar constraints make Feb more realistic… • President: • Caucus control • Coalition bolstering • Making the case to his base – needs SOMETHING to pass! 2

3. Major issues of debate • Public Plan v Cooperatives • Taxing high-income people to fund subsidies vs taxing high-cost health plans • National Exchange vs state-run or regional • Employer mandate • Timing and enforcement of individual mandate • Individual subsidy levels • Medicaid eligibility increase (Fed v state responsibility) • Subsidy eligibility levels • System reforms for sustainability 3

4. Key Differences: House and Senate Compromise Bills • Public Plan • House: Starts in 2013; no opt out; offered through the new “exchange,” based on negotiated payment rates; includes death panels & abortion; Medicare providers presumed in unless they opt out. • Senate: Included with “opt out” provision for states. • Guaranteed issue • House: Begins in 2013; includes guaranteed renewal; no pre-x. • Senate: Begins in 2013 with yearly open enrollment (first O.E. in Fall of 2012); includes renewal; no pre-x. 4

5. Key Differences: House and Senate Compromise Bills Mandate on individuals House: Starts in 2013; 2.5 % tax imposed on modified adjusted gross income; exempts those with hardship. Senate: Penalty from $200-750 per adult phased in 2014-2017; exempts who cannot afford ins, households with less than 133% FPL ($29,327), individuals who would pay more than 8% of income to buy cheapest plan). Mandate on employers House: Employers pay 8% tax of average wage of workforce; Exempts small employers with less than $500,000 payroll; those between $500-750,000 would pay tax between 2-6%. To comply, ERs must pay 72.5% of the premium for individ coverage & 65% of premium for family. Senate: No mandate; in 2013, employers (over 50 employees) must repay government $400 per employee for tax credits for employees. 5

6. Key Differences: House and Senate Compromise Bills Rating reformsg reforms House: 2:1 for age, geography and family size (no gender, health) Senate : 4:1 for age; geography and family composition also allowed. Same rating rules would apply to small group, phased from 2013 to 2018 Minimum loss ratios House: 85/15; rebates required for plans who don’t qualify Senate: 85/15 Subsidies House: up to 400% FPL sliding scale; range from 1.5% max premium for those at 133% FPL to 12% for those at 400% FPL. Senate: Phased in tax credits for 134-300% FPL in 2013; 100-133% FPL in 2014; cap of 12% prem for those between 300-400% FPL; cost-sharing subsidies avail for 100-200% FPL and less out-of-pocket for less than 400%. 6

7. Key Differences: House and Senate Compromise Bills Insurance Exchange House: Creates national exchange offering to individuals & small groups who don’t have coverage through employer or public plan 2013 open to ERs with less than 25 EEs; 2014 open to less than 50 EEs; 2015 less than 100 EEs; Health Choices Commissioner would set standards for plans, audit/sanction, enforce reforms & collect data for quality improvement, etc. Senate: States create and manage exchanges through which individuals and small groups may purchase by 2010; no price differential allowed within/outside of exchange; open to legal immigrants only; open to employers with less than 50 employees for first 5 years; states can opt to open up to 100 employees; after 2015, mandatory for employers up to 100 ee’s; states can opt out starting in 2015. 7

8. Key Differences: House and Senate Compromise Bills Benefits (qualifying coverage) House: 4 categories, Bronze to Platinum with all products meeting a minimum standard to include ambulatory patient services, ER, hosp, maternity, newborn, mental health, substance-abuse, Rx, rehab, devices, labs, wellness/prevention and pediatric; depend covg thru age 26; rescissions only for fraud w/IR; HHS approves premium increases; pre-x “look back” ltd to 30 days and exclusions for 3 mos max; no lifetime limits. Senate: Bronze to Platinum plans covering diff shares of expenses (65-90%); additional “young invincible” basic cat plan (25 and under); basic package includes preventative & primary, MD, outpatient, ER, Hosp, day surgery, dx imaging, maternity, newborn, pediatric, medical/surgical, Rx, radiation/chemo, mental health, substance abuse. Prohibits abortion in min pkg. Current individual products grandfathered. 8

9. Key Differences: House and Senate Compromise Bills Medicaid eligibility House: Starts 2013to 150% of FPL (States pay 10% of expansion cost) Senate: In 2014 up to 133% FPL; feds pay most costs until 2019; state option to create “basic health plan” for 133-200% FPL not eligible & no ER coverage; no federal subsidy through exchange if you qualify for Medicaid; states receive 85% of $ that would have been paid as subsidy. Funding House: Budget cuts including “doc fix,” 5.4% surtax on taxpayers over $500,000 ind/$1M joint ($460B); MA cuts ($170B); Medicare Part A hosp cuts ($141B); Medicare home health cuts ($57B); 2.5% tax on medical devices.  Senate: MA cuts ($120 bill.); assess health sector “fees” on device manufacturers, labs, drug importers, and insurance companies ($13B per yr/ $6.7 on ins plans); excise tax (40%) on plans costing more than $8000 indiv./$21,000 family applied to premiums over that threshold) 9

10. WILL IT PASS? House Whip vote-count as of 10/29/09: 256 Member Democratic Caucus: 168 definite vote “yes” for strong public option; 20 leaning yes 12 undecided 8 leaning no 47 opposed 52 House 52 “Blue Dog” Democrats 12 support strong public option 32 oppose 8 leaning no or undecided 15 in “no” category who do not belong to the Blue Dog Coalition 10

11. Health Care Reform-Aetna’s View Across the Issues 11

12. Possible Reform Timeline (Senate Finance example) • Exchanges created • SHOPs created • High risk pool created • Insurance carrier “fee” begins • Co-op formation begins • State ombudsmen required • All Co-op seed money distributed • Small business tax credit begins • Sept-Nov ind. open enrollment • Small group regulatory phase-in complete • Large group “phase-in” to rating rules begins • Sm. Bus. Tax credit only available thru Exchange • Medicaid drug benefit mandatory 2011 2013 2015 • G.I. • Ind. mandate • Individual tax credits • Medicaid eligibility increase required • Reinsurance and risk adjustm’t • High-risk pool sunsets • Small-group and “grandfathered” ind. rating rules apply • Excise tax for high-cost premiums • Cafeteria plan “safe harbor” • State option to expand Medicaid 2012 • States may form cross-border compacts • “National plans” may cross state lines 2018 2014 2010

13. State policymakers will be busy! • Medicaid program expansion • Addressing new state-level funding needs • Configuration of Exchange/Gateway • Developing reinsurance and risk adjustment function • Maximizing federal funding for quality improvement • NAIC Model Regulation development • Conforming state law to federal insurance reforms • Guaranteed issue • Rating reforms • Market conduct • Individual mandate compliance

14. Health Care Reform – The Spending Numbers “Waste” accounted for 34% to 50% of the $2.2 trillion spent nationally on health care in 2007* Individual behaviors (e.g., preventable risk factors like smoking, obesity or non-adherence to Rx regimen) ~10% Clinical diversity ~18% (e.g., defensive medicine, uneven adoption of evidence-based medicine) Appropriate spending ~58% ~14% Operational inefficiency (e.g., underuse of HIT, lack of process coordination across system, wasteful administrative overhead) * The estimated range for waste is between 34 and 50 percent of total health spending. Source: PWC, The Factors Fueling Rising Healthcare Costs, 2008

15. Health Care Reform – More Numbers Net Profit Margin ( Average for 2006) Industry 5.3% Top Ten Managed Care/Health Care Plans Drug Manufacturers Medical Technology Biotechnology Hospitals 24.7% 13.2% 12.8% 6.0% Source: thestreet.com ratio comparison chart for industry, March 2009

16. March, 2009 Estimates Health Care Reform – The Uninsured Numbers Market Size: 2009 Estimates Approximate Lives in Millions U.S. Population = ~306 Million Lives Government Health Programs and the Uninsured = ~131M Total U.S. Commercial Health Care Market = ~175M Medicaid1, 30 Individual2, 18 Notes: 1 Medicaid enrollment does not reflect the growth of this market from the February, 2009 passage of SCHIP legislation, data not yet available. 2 Individual insurance market enrollment data reported from the US Census Bureau’s 2008 “Current Population Survey”, not yet been updated in 2009. Source: Inductis Analysis of 2009 Dun and Bradstreet data; Census CPS Survey, 2008; Centers for Medicare & Medicaid Services (CMS); EBRI Issue Brief No. 321, September 2008; Aetna Market Insights Analyses, March 2009.

17. Shannon Meroney (512) 731-6615 meroneys@aetna.com Updates, resources, communication tools on federal reform: www.americanhealthsolution.org http://www.aetna.com/about/america/ Studies and data supporting industry positions: www.AHIPResearch.org.