Healthcare Uncertainty: An Election Year Preview

1. Healthcare Uncertainty:An Election Year Preview David Merritt Managing Director, Leavitt Partners Salt Lake Chamber 9.17.12

2. Overview • Race for the White House • Congress • Affordable Care Act • 2013 scenarios • Beyond 2013

3. A Snapshot of the Race for the Presidency

4. Why Barack Obama Can’t Win… • Unemployment over 7.2% (8.1%) • Consumer Confidence Index below100 (60.6) • Approval less than 50% (average ≈ 48% since March)

5. Why Mitt Romney Can’tWin… • More “likable”candidates win (Obama 51-43%) • Intradeprojectsan Obama win (Obama 62-38%) • Rising stock markets favorthe incumbent (Dow 35.77% increase past 3 years)

6. But, External Forces Can Change the Race

7. Why Either Could Win • Middle East unrest • Iran hostage crisis • Osama bin Laden video • 2008 financial meltdown

8. Why Either Could Win • Euro collapse • Another downgrade • Israel attacks Iranian nuclear facilities • Terrorist attack

9. How Does This Election Feel?

10. What Did 2004 Feel Like? George W. Bush vs. John Kerry • War in Iraq • War in Afghanistan • Unstablemarkets

11. How Did 2004 End? Bush Kerry Incumbent Won

12. What Did 1980 Feel Like? Jimmy Carter vs. Ronald Reagan • HostageCrisis • Misery index(Unemployment & Inflation) • Mid-recession

13. How Did 1980 End? Reagan Carter Challenger Won

14. 270

15. President Has the Advantage Romney Obama Source: RealClearPolitics.com

16. Solid/Likely Democrat: 237 Electoral Votes 4 12 ` 3 10 11 29 7 4 16 20 7 14 3 10 20 55 5 HI 4 Source: RealClearPolitics.com

17. Solid/Likely Republican: 191 Electoral Votes 3 3 4 3 3 5 11 5 6 10 6 8 11 7 9 11 6 16 9 6 AK 3 38 8 Source: RealClearPolitics.com

18. Nine Toss-Up States Will Decide the Election

19. Toss-Up States: 110 Electoral Votes NH 4 WI10 IA6 OH 18 NV 6 VA CO 9 13 NC 15 FL 29 Source: Charlie Cook

20. President Currently Leads in Eight out of Nine Toss-Up States

21. According to RCP with No Toss-Ups… Romney Obama

22. But according to Rasmussen Today… 40 Romney Obama Florida (29) North Carolina (16) Wisconsin (10) Iowa (6) Michigan (16) Nevada (6) New Hampshire (4) Missouri (10) TIED Virginia (13) Colorado (9) Ohio (18)

23. A Snapshot of the Congress

24. House of Representatives Democrats Republicans 218 Seats to Control House

25. House Toss-Up Races 229 Safe 183 Safe 23 Democrats Republicans Toss-Up Democrats Need35 Seats to Win

26. United States Senate Republicans Democrats Republicans Need Four Seats to Win the Senate

27. Senate Toss-Up Races 46 Safe/Lean/Not Up 47 Safe/Lean/Not Up 7 Ohio Brown-D (Inc): 47% Mandel-R: 43.3% Toss-Up Republicans Democrat Democrats Montana Rehberg-R: 47% Tester-D (Incu): 43% Republican Massachusetts Brown-R (Inc): 43.4% Warren-D: 42.6% Republican Connecticut McMahon-R : 47.3% Murphy-D: 46.7% Republican • Virginia • Allen-R: 46.3% • Kaine-D: 45.5% Republican North Dakota Berg-R: 48.7% Heitkamp-D: 43.7% Republican Indiana Mourdock-R: 42% Donnelly-D: 40% Republican

28. If the Elections Were Today, Current Polling Suggests… Republicans Democrats

29. The Patient Protection and Affordable Care Act

30. 2014 • Mandate requires individuals to purchase qualified health insurance or pay a fine of $95 for each family member or 1% of taxable household income, whichever is greater • Health plans can no longer exclude people from coverage based on pre-existing conditions • Community rating for individual and small-group premiums • Federal subsidies based on income up to ≈ $90,000 for a family of four • Out-of-pocket expenses capped at 9.5% of income

31. 2014 • State (or federal) insurance exchanges created • Medicaid eligibility expands to 133% of the federal poverty level (≈ $30,000 for a family of four) • Annual fees totaling $60 billion begin for insurers • Companies with 50 or more employees will pay a fine of $2000-3000 per employee if… • Company does not offer qualifying coverage • One full-time employee receives federal subsidy in an exchange • Coverage is deemed not “affordable” • Coverage does not provide “minimum value”

32. Businesses

33. 2013 President Obama and/or Democratic Senate • ACA implementation will continue and accelerate • Key rules to come: subsidies, guaranteed issue, community rating, exchanges, employer provisions, and essential health benefits • HHS flexibility likely to continue; delays unlikely • Opposite: potentially rigid regulations being slow-walked for after the election • What will Republican governors do? • Hill Democrats unlikely to make any legislative changes • New legislative action would give Republicans the opportunity to undermine the law • Republican Senate & President Obama: 1995?

34. 2013 President Romney, Republican Congress • Symbolic repeal vote early • Budget reconciliation • 50 votes, plus Senate president (Vice President Ryan) • Prohibits action on policy “merely incidental to” budget • What can they go after? Taxes, subsidies, Medicare cuts, Medicaid expansion, mandate taxes • What do they choose to keep? Innovation Center • Many red states are likely to continue to wait • Entitlement reform as “replace” vehicle • Introduced in stages rather than in one large bill

35. What the Election Won’t Affect • Transition to quality-based payment • Health information technology • Consumerism • Transparency

36. A health care intelligence business David Merritt Managing Director David.Merritt@LeavittPartners.com