Health Care Reform Proposals Including the

President’s PlanA Product of Marketing Development

Presented by:

Michael Bertaut

Senior Healthcare Intelligence Analyst

February 23, 2010

2

124%122%

118% 116% 115% 116% 117%119%

122%

129% 129%133%

99%104% 102% 100% 99% 98% 98%

95%92% 92% 91% 91%

94% 95% 96% 97% 96% 95% 96% 96%92%

90%87% 88%

131%

102%

87%80%

100%

120%

140%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Paym

enr-t

o-co

st R

atio

Private Payers Medicare MedicaidNote: Payment-to-cost ratios indicate the degree to which payments from each payer covers the costs of treating that provider’s patients. Data are for community hospitals and cover all hospital services. Imputed values were used for missing data (about 35% of observations). Most Medicaid managed care patients are included in the private payers’ category.Source: Adapted from the American Hospital Association and Avalere Health TrendWatch Chartbook 2007: Trends Affecting Hospitals and Health Systems

Hospital Payment-to-cost Ratios for Medicare, Medicaid and Private Payers1995-2007

Break Even (Payment = Cost)

How Government Insured Squeeze Medicine

In Louisiana, Medicaid averages covering 83% of hospital costs. At

BCBSLA we have hospitals at 185% of costs.

Current Reform Data

SGR Limits Enacted

3

The Uninsured: Who are They?

In-Betweeners, 13,220,000,

28%

Monied Opting Out, 11,370,000,

25%

Eligible Not Signed Up, 12,220,000,

26%

Undoc Migrant

Workers, 9,400,000,

20%

Current Reform Data

“46.3M Uninsured @ the end of 2008, Census 9/10/10”

10 September 2009 Census Bureau Conference Call: 2008 Update on Poverty and the Uninsured

4BCBSLA Audited Financial Results FY 2008National Averages Adapted from Centers for Medicare and Medicaid Services (2008)

3333¢¢HospitalHospital

30¢30¢Physician Physician

and Clinical and Clinical ServicesServices

10¢10¢Admin Admin

Cost Including Cost Including Taxes, Taxes,

CommissionsCommissions

1313¢¢Prescription Prescription

DrugsDrugs

66¢¢DentalDental

ServicesServices

2¢2¢ OtherOther

ProfessionalProfessionalServicesServices

11¢¢NursingNursingHomeHome

2¢2¢Home Home Health Health CareCare

How Your Carrier Spends Premiums.

$783M; 37%

$656M; 31%

$338M; 16%

In 2008, BCBSLA collected $2.115B in risk premiums,

broken out like this:

$338M; 16%

3¢3¢Future Claims Future Claims

Reserves/ProfitsReserves/Profits

NATIONAL

AVERAGES

84+% of Premiums Went to Medical in 20087% Salaries/Admin

5% Commissions

2% Reserves

2% Taxes

Current Reform Data

The President’s Proposal

Targeted set of changes to Original Senate Bill (not manager’s amendment)

Suggest adjustments to make more palatable to House, plus a few others.

Focused on “agreed upon” principles, controversial aspects will look more like Senate than House Bill.

Special Nebraska deal gone, Louisiana deal probably gone too.

5

Current Reform Data

The President’s Proposal New federal “Health Insurance Rate

Authority” will supersede state administration of health insurance rates.

“Grandfathered” plans will not be protected, will be required to add new insurance rules immediately including dependant coverage to age 26, no rescission, federal rate review, federally-mandated appeals processes. In 2014, must add no pre-x, G.I., no benefit limits. In 2018, all new first dollar tests must be included.

6

Current Reform Data

The President’s Proposal Individual Mandate included, but weaker than

either House or Senate proposals. Reverts the Medicare Part D “doughnut hole”

to regular cost-sharing by 2020. Keeps fees on Health Insurers ($6.7B/year),

Drug Companies ($2.3B/year) and Device Manufacturers ($2.0B/year) but delays implementation until 2014.

Makes federal subsidies to those below 400% of FPL more lucrative.

7

Current Reform Data

Subsidy Limits in PBO Proposal

8

Current Reform Data

Average Family of 4 Premium Upon Implementation estimated to be $13,500/year. A Family making $55,000 cannot pay more than 8.1% of income for health insurance. Thus they will receive $13,500 - $4,455 = $9,045 in Federal Aid to purchase Health Policy, 67% Subsidy.

Cost-Share Limits in New Proposal

9

Current Reform Data

Fed will subsidize Cost-Sharing so that no one below 400% of FPL can have an actuarial value plan below 70%.

Thus, our $55k family Will never pay more than 27% of all medical expenses out of pocket (100-73%) no matter what plan they buy, as long as they purchase through the exchange.

The President’s Proposal Pays 100% of Medicaid expansion for 2014-

17; 95% for 2018-19, 90% afterwards Require Medicare taxes of 2.9% to all

unearned income (rent, investments, etc) on all individuals over $200k/250k family.

10-Year Cost north of $950B Keep “Cadillac Plan” tax, but raise thresholds

to $10,200 & $27,500, delay until 2018. Exchanges “seem” to be state-based, like in

Senate Bill.10

Current Reform Data

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Agreed upon by Both Houses Medicaid will be dramatically expanded to at least 133%

of FPL, no means testing. Insurance purchases will be subsidized for all who make

less than 400% of FPL. There will be government run exchanges where insurance

will be sold with subsidies verified and managed by the IRS. FQHBP established.

Insurance reform will include no pre-existing conditions, no medical underwriting, limited age underwriting, guaranteed issue insurance, regulated medical loss ratios, dependants on parent’s coverage to age 26.

Large fees on insurance carriers, pharma, device makers.

Current Reform Data

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Disagreements V House & Senate Will Exchange be part of Federal Agency (HB) or

operated by the states (SB)? Will the marginal FIT rate go up 5.4% (HB), or will a

40% excise tax be put on high cost health plans(SB)? Will there be an Individual Mandate and will it have

teeth? Will MLR requirements be 85% across the board (HB)

or 80% on small group/individual and 85% large group (SB). Both require rebates.

Will businesses be forced to offer insurance to their employees at $250k of payroll (HB) or at 50+ FTE (SB) .

Abortion Language

Current Reform Data

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Premium Drivers in the PPACA (85% of Premiums Go to Medical)

Individual “Suggestion” Guaranteed Issue No Medical Underwriting No Pre-existing conditions $10B Health Insurance “Fee” $4-500B in Medicare Cuts over 10 years 40% Excise Tax on high-end plans Very Rich Minimum Plans Required

Current Reform Data

Not Considered:

New Emergency Room Network Rules

14

Family Premiums Rise Much Faster With Reform: PWC Study

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Average Family

Premium

Today 2013 2016 2019

Doing Nothing Senate Finance Bill

Current Reform Data

Impact of Health Insurance Reform on the Cost of Private Premiums: Price Waterhouse-Coopers

+$1,700+$2,900

+$4,000

Reform will Cost Average Family $20,000 More Than Doing Nothing

Differentials

Contact Information:michael.bertaut@bcbsla.com

“Let’s see, I’ve been called a Villain (Pelosi), Immoral (Reid), Shark (Rangel), Untrustworthy (Boxer), Needs to be Kept Honest (Obama), Obstructionist (Waxman), Evil Profiteer (Pelosi again), Political Terrorist (Pelosi Again), Traitor (Hoyer), fanatic Aryan Support Group (Whitehouse) and “just like a supporter of slavery”(Harry Reid).”

16

Healthcare Expenses Incurred by Percentiles of U.S. Population

The cost burden of disease is high, 5 percent of the U.S. population accounts for nearly half of all U.S. healthcare expenditures which total $2.2 Trillion in 2008.

To Understand the Current System, Identifying the Actual Consumers is Important

22%

49%

64%

80%

97%

3%0%

20%

40%

60%

80%

100%

Top 1% Top 5% Top 10% Top 20% Top 50% Bottom 50%

Pe

rce

nta

ge

of

U.S

. H

ea

lth

ca

re

Ex

pe

nd

itu

res

Note: Figures are based on data from one year.Source: Stanton MW. The High Concentration of U.S. Health Care Expenditures. Research in Action, Issue 19. AHRQ Publication No. 06-0060, June 2006. Rockville, MD: Agency for Healthcare Research and Quality. Available at http://www.ahrq.gov/research/ria19/expendria.htm

Annual Expenses per person ≥$35,543 ≥$11,487 ≥$6,444 ≥$3,219 ≥$664 <$664

Is there a Better System?

17

Make-Up of the House—HR3962

House of Representatives

256 Democrats

178 Republicans

1 Independent

Ways and Means

Chair: Charles Rangel D-NY

26 Democrats

15 Republicans

Energy & Commerce

Chair: Henry Waxman D-CA

36 Democrats

23 Republicans

Education & Labor

George Miller D-CA

30 Democrats

19 Republicans

Current Reform Data

The Vote:

220 For

215 Against

J. Cao votes For

18

Make-Up of the Senate—PPACA

United States Senate

59 Democrats

39 Republicans

2 OTF

Senate Finance

Chair: Max Baucus D-MT

13 Democrats

9 Republicans

1 OTF

Senate HELP

Chair: Tom Harkin D-IA (formerly Ted Kennedy)

12 Democrats

10 Republicans

1 MIA (Mass.)

Current Reform Data

Years With Similar Majorities:

1937-39

1959-67

1975-79

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Make-Up of the Cabinet—Obama Administration

Current Reform Data

432 Members of the Executive Cabinet and less than 8% (32) have ANY private sector experience.

American Enterprise Institute: Help Wanted, No Private Sector Experience Required (Nick Shultz 11/25/2009)