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

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

A (very) brief history of health care reform 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 From Truman to Reagan: 30+ years

A (very) brief history of health care reform 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 From Clinton to Obama: 15+ years

5 Timeline of key events 2008 In June, Finance Committee Summit In November, Obama elected, promises health care reform 2 nd Quarter 2009 Finance Committee Roundtables House and HELP release bills and begin mark-ups 1 st 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 Outlook for reform positive

6 Timeline of key events 4th Quarter 2009 November 7: House passes bill ( ) Leiberman says he’ll vote against a bill with a public option December 24: Senate passes bill (60-39) 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 1 st Quarter 2010 Closed door talks Dems lose 60 th vote January 27: State of the Union deadline missed February 25: Obama meeting to “rescue” reform Outlook For reform unclear

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

Why is health care reform so important? 8

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10  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 Why is health care reform so important?

11  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 20 th in life expectancy and 27 th in infant mortality  More people in America die after heart attacks in higher- spending regions compared to lower spending regions Why is health care reform so important?

12  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 20 th in life expectancy and 27 th 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 Why is health care reform so important?

Adding up the 46 million uninsured: who should not be counted ____Illegal immigrants ____Can afford, don’t buy ____Young adults 13

Adding up the 46 million uninsured: who should not be counted 6 million Illegal immigrants ____Can afford, don’t buy ____Young adults 14

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Who pays? 32 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

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