PE and Health Care Reform: The Impact of the Supreme Court Ruling July 12, 2012 To enable audio, please enter the audio pin followed by the pound key that is listed under audio in your gotomeeting tool bar

Page 2 What Did the Court Say?  Individual Mandate  Unconstitutional under the power of Congress to regulate interstate commerce.  Constitutional under Congress’s taxing power  Medicaid  In general, Medicaid expansion is constitutional  However, the Federal government cannot force States to expand their Medicaid programs as called for under the new law.

Page 3 What Does the Ruling Mean?  Private Health Insurance  All of the new fees and the MLR requirements will continue to apply to carriers, but the rich subsidies for health insurance and the Exchanges will be around.  Employers  All of the new reforms affecting private health insurance and group health plans will remain intact.  Taxes  The new tax provisions will remain in full-force.  Hospitals and Providers  Importantly, new spending cuts for hospitals and reduced Medicare and Medicaid reimbursement rates will still take effect.  Medicaid  States may opt out of expanding their Medicaid programs as called for under the Federal law.

Page 4 Private Health Insurance  Insurance carriers – Net Positive  Negative = New fee (excise tax) on health insurance carriers and the MLR rules.  Positive = Carriers will sell more insurance products and new customers will be subsidized by the government.  Health Insurance Markets – Impact Unclear  New premium rating rules and “guarantee issue” = Disruptive effect on markets and adverse selection?  Will the 3 Rs (reinsurance, risk adjustment, risk corridors) work?  Health Insurance Exchanges – Will Probably Work  The Exchange will deliver the subsidies for health insurance, but it is likely that only a handful of States will have their Exchange up and running by January 1,  The Federal Exchange will operate in the remainder of the States or there will be a Federal-State partnership.

Page 5 Employers  New Requirements for Health Plans – Adds Burdens  The new requirements for employer-provided health plans will likely increase costs, and the new reporting and disclosure requirements, new taxes, and new provisions such as automatic enrollment for large employers will add to the burden of offering coverage.  Employer Mandate Penalty Tax – Pay or Play?  Cheaper to drop coverage and pay penalty tax, but need to attract and retain talent.  Will Employers Continue to Play? – Unclear  Large Employers = Yes (at least for a while); Mid-Sized Employers = Maybe (economic decision v. attracting talent); Small Employers = Unlikely (but when will they drop?).  Alternatives = “Private” Health Insurance Exchanges and Defined Contribution.

Page 6 Taxes  New Taxes to Pay For Expansion of Coverage  Fee (excise tax) on drug makers = May result in disputes among drug makers, but law still net positive for industry.  Fee (excise tax) insurance carriers = May result in disputes, but law still net positive for industry.  Excise tax on all health plans = Adds up for insurance carriers and self-funded employers.  Additional Medicare payroll tax = Only impacts high-earners (above $200k/$250k), but administratively burdensome for employers.  “Medicare contribution tax” = 3.8% tax on investment income for high-earners (above $200k/$250k), which will likely have an adverse impact on investments and economic growth.  High-cost plan tax = 40% excise tax on high-cost plans, but probably won’t go into effect due to politics.

Page 7 Hospitals and Providers  Cuts In Payments  Agreed upon payments cuts will remain in effect.  Uncompensated Care and Bad Debt  Generally mitigated due to individual mandate.  However, if States do not opt in the Medicaid expansion, uncompensated care and bad debt exposure will remain.  ACOs  Is it a win-win, or will hospitals/health systems be burdened with taking on risk, while not benefiting from premium dollars collected by the insurance carriers?  Consolidation  Hospitals and health systems will continue to consolidate in an effort to manage the risk the new law has placed on hospitals and providers.

Page 8 Medicaid  States Opting Out?  With the Supreme Court ruling that the Federal government could not penalize States if they chose not to expand their Medicaid programs as called for under the new law, it remains unclear how many States will actually “opt out” of the Medicaid expansion.  Medicaid Managed Care Plans  A number of States have already moved to Medicaid managed care plans, and many more States are looking to shift into Medicaid managed care plans.  Medicaid Reimbursements  Reductions in DSH payments and rebates from drug manufacturers.

Page 9 What’s Next?  The Regulators  Significant pieces of guidance have yet to be issued – “Essential Health Benefits,” “Minimum Value” for employer plans and the “Employer Mandate,” Medicare investment tax.  The regulators are listening to stakeholders, so you can influence the implementation of the new law.  Congress  If Republican House and Senate, efforts to repeal portions of the law via “reconciliation.”  If President Obama is re-elected, could we see bipartisan legislation to improve the law?  States  States are the key to implementing the law.  Will States that resist come up with their own health care reform ideas?