H ealth care reform: Will it ever happen?

1. Health care reform:Will it ever happen? Kathy Galarneau Senior Vice President Actuarial and Underwriting February 16, 2009

2. Agenda How we got here Why reform is important What causes high health care costs What reform will accomplish What’s next? 2

3. A (very) brief history of health care reform From Truman to Reagan: 30+ years 1949 1965 1971 1973 1986 • Truman: proposes reform in Fair Deal • LBJ: signs Medicare/Medicaid into law • Nixon: backs national health care reform • Nixon: signs law creating HMOs • Reagan: signs COBRA into law 3

4. A (very) brief history of health care reform From Clinton to Obama: 15+ years 1993 1996 1997 2006 2007 2009 • Clinton: fails to achieve reform • Clinton: Strengthens privacy laws (HIPAA) • Clinton: Enacts CHIP (bi-partisan sponsors) • Bush: Signs Medicare Part D • Bush: twice vetoes CHIP expansion • Obama: expands CHIP 4

5. Timeline of key events • 2nd Quarter 2009 • Finance Committee Roundtables • House and HELP release bills and begin mark-ups • 2008 • In June, Finance Committee Summit • In November, Obama elected, promises health care reform Outlook for reform positive • 1st Quarter 2009 • In February, Obama sets October deadline for reform bill • In March, 2010 budget includes $634B health care reserve • In March, White House holds Summit on reform

6. Timeline of key events • 3rd Quarter 2009 • July 15: Senate HELP approves bill • July 17: Two House panels pass bills • August: Debate gets hostile at summer Town Halls • September 9: Obama addresses Congress • September 16: Finance Committee releases bill Outlook For reform unclear • 4th Quarter 2009 • November 7: House passes bill (220-215) • Leiberman says he’ll vote against a bill with a public option • December 24: Senate passes bill (60-39) • 1st Quarter 2010 • Closed door talks • Dems lose 60th vote • January 27: State of the Union deadline missed • February 25: Obama meeting to “rescue” reform 6

7. Overview of IBC and “the Blues” • 1 in 3 people have “Blue” health coverage • Blues strongly support comprehensive, bi-partisan health care reform • Independence Blue Cross • Non-profit organization • Largest health plan in five-county region • 3.2 million members • 48,000 employer customers • Partner with 36,000 health professionals, 160 hospitals 7

8. Why is health care reformso important? 8

9. Why is health care reformso important? 9

10. Why is health care reformso important? • Costs are out of control • 1 in 6 dollars is spent on health care • Employer premiums doubled in last 10 years • Medicare now pays out more than it collects in taxes 10

11. Why is health care reformso important? • Costs are out of control • 1 in 6 dollars is spent on health care • Employer premiums doubled in last 10 years • Medicare now pays out more than it collects in taxes • Quality inconsistent • U.S ranks #1 in the world in health care spending — $7,500 per capita — yet ranks 20th in life expectancy and 27th in infant mortality • More people in America die after heart attacks in higher-spending regions compared to lower spending regions 11

12. Why is health care reformso important? • Costs are out of control • Health care spending is 17.3% of GDP, or $2.5 trillion • By 2020, spending projected to be $4.5 trillion. • Employer premiums doubled in last 10 years • Medicare now pays out more than it collects in taxes • Quality inconsistent • U.S ranks #1 in the world in health care spending — $7,500 per capita — yet ranks 20th in life expectancy and 27th in infant mortality • More people in America die after heart attacks in higher-spending regions compared to lower spending regions • Too many shut out • 46 million uninsured • 80% of uninsured come from working families 12

13. Adding up the 46 million uninsured: who should not be counted ____ Illegal immigrants ____ Can afford, don’t buy ____ Young adults 13

14. Adding up the 46 million uninsured: who should not be counted 6 million Illegal immigrants ____ Can afford, don’t buy ____ Young adults 14

15. Adding up the 46 million uninsured: who should not be counted 6 million Illegal immigrants 5 million Can afford, don’t buy ____ Young adults 15

16. Adding up the 46 million uninsured: who should not be counted 6 million Illegal immigrants 5 million Can afford, don’t buy 3 million Young adults 16

17. Adding up the 46 million uninsured: who should not be counted 6 million + Illegal immigrants 5 million + Can afford, don’t buy 3 million + Young adults 14 million 17

18. Adding up the 46 million uninsured: who should not be counted 6 million + Illegal immigrants 5 million + Can afford, don’t buy 3 million + Young adults 14 million 46 -14 = 32 million uninsured 18

19. Why costs go up How can reform help? Source: PriceWaterhouse Coopers, 2008 19

20. Why costs go up How can reform help? • Incentives for healthy living • Better care for chronically ill • Sin taxes Unhealthy lifestyles are expensive We’re not getting any younger (Wishful thinking) We want the latest and the best care — but don’t always get it • Health IT funding • Evidence-based care • Pay for performance We all pay for the uninsured Expand access to care Source: PriceWaterhouse Coopers, 2008 20

21. Why costs go up How can reform help? When Uncle Sam does not pay, we do Avoid more cost shifting • Pay for performance • Fund medical school for PCPs Doctors get pay raises, too Fear of malpractice suits Tort reform and limiting jury awards Source: PriceWaterhouse Coopers, 2008 21

22. Health care profits overstated According to Fortune Magazine’s recent industry profitability rankings, in 2008, health plans had a profit margin of 2.2% and are 35th on the list: 1 Network & Communications Equipment 20.4% 2 Internet Services and Retailing 19.4% 3 Pharmaceuticals 19.3% 28 Specialty Retailers 3.2 % 32 Beverages 2.9 % 35 Health Care: Insurance & Managed Care 2.2 % 22

23. Key stakeholders America’s Health Insurance Plans Congressional Budget Office (CBO) American Medical Association U. S. Chamber of Commerce American Labor 23

24. What health care reform aspires to do… • Expand coverage • Require all to participate • Make care more affordable • Change insurance practices • Increase choice, competition • Improve quality of care • Reduce costs …and how legislation gets us there. 24

25. Expands coverage to 29 - 36 million more Americans, or 94% - 96% of the population. 25

26. Individual • “Shared responsibility” (mandates) • Penalties: start at $95/year to 2.5% • of adjusted gross income • Employer • Pay some or all of subsidy, or up to 8% of payroll 26

27. Premium assistance • Individual subsidies: up to 400% of FPL, or if • coverage costs more than 12% of income • Employer tax credit: less than 25 workers, • with wages under $40,000 • Expand Medicaid • Cover 15 million more people • 133% to 150% of poverty level 27

28. Eliminate denials based on preexisting conditions or health status • Prohibit annual/lifetime caps • Change age bands: 2:1 or 3:1 ratio 28

29. Public option: with or without state opt out • Exchanges: state-based or national 29

30. Delivery system reforms • Initiate clinical effectiveness projects • Establish support for medical homes • Wellness and prevention • Eliminate cost sharing for Medicare preventive services • Add smoking cessation programs • Workforce investment • Increase pay for primary care physicians • Expand scholarship and loan programs 30

31. CMS study: Costs will rise $289B by 2019 CBO: Fails to lower premiums for some, lowers deficit by $130B by 2019 BCBSA study: Individual premiums will raise on average 54% after reform 31

32. Who pays? • Price tag: $848 billion to $1.05 trillion • Savings • Cut Medicare Advantage: $144B • Reduce growth rate $180B • New revenue • Tax high income earners: $460B • Tax Cadillac plans: $200B • Fees on industry: $133B • Insurers ($70B) • Pharma ($23B) • Medical device makers ($40B) • Penalties on individual/employer $167B 32

33. What’s next? (Anyone have a crystal ball?) • Obama convening televised, bipartisan meeting on Feb. 25 to “rescue” reform • How Congress could pass a reform bill • Attempt to pass with budget reconciliation • Scale down bills for easier passage • Start over • Do nothing 33

34. Questions?Visit ibx.com for more information 34