The Politics of Reform A National and State Perspective Steve Dickson President/CEO Stratagem

Today’s discussion: Quick History of Major Health Care Reforms in Modern America. Why Health Care Reform is Needed. What the Health Care Reform Act Does. Political Reality and the Current Environment. Health Care Reform Implementation. Will it be Repealed? 1

Health Reform Becomes Law The Patient Protection and Affordable Care Act (PPACA) was signed into law March 23. It was amended by the Health Care & Education Affordability Reconciliation Act, which was signed into law March 30. Together, the legislation: → Provides coverage to 32 million uninsured people by → Costs an estimated $940 billion over 10 years ( ). 2

Why Was Health Reform Needed? 3

Why Health Reform? → Today, there are 51 million uninsured individuals. That number grows daily. → Over the last 10 years, insurance premiums have risen 131%. → An average family of four pays more than $13,000 annually in premiums. 4

What’s Included in Health Reform? 5

Health Reform: Key Elements → Expanding coverage → Reforming the delivery system → Financing reform → Protecting Medicare & Medicaid payments → Building the workforce → Wellness and prevention → Quality and safety → Regulatory oversight & program integrity 6

158 million 50 million 25 million 23 million 26 million Source: Congressional Budget Office Expanding Coverage to 32 Million 7

Coverage: Individual Mandate → In 2014, all individuals will be required to obtain coverage or face a penalty. → Individuals can purchase coverage from newly created “insurance exchanges.” → Federal help for some individuals to pay for insurance. 8

“Small companies and individuals who don’t have insurance through work will be able to purchase insurance through newly created marketplaces, known as insurance exchanges, created and regulated by states. … Think of it as an Orbitz or Travelocity for health care plans.” - USA Today Coverage: Insurance Exchanges 9

Coverage: Large Employers Large employers (businesses with 50 or more employees) will be fined if their employees purchase health care coverage through new insurance exchanges and receive federal help to pay their premiums. 10

Coverage: Small Employers → Employers with 10 or fewer employees who earn, on average, less than $25,000 a year can get a 50% tax credit for providing health insurance. → Employers with 25 or fewer employees who earn, on average, less than $50,000 can receive a partial tax credit. Small businesses are eligible for subsidies to offer insurance and will have access to the exchange 11

Immediate Insurance Reforms Effective September 23, 2010 → No cancellation of coverage when someone becomes sick. → No lifetime benefit limits or unreasonable annual limits. → No pre-existing condition exclusions for children (under 19). → Free preventive care (including immunizations for children). → Adult children up to age 26 can stay on their parents’ plan. 12

Additional Insurance Reforms Effective September 23, 2010 → Limits insurers’ ability to set premiums based on health status. → Provides important administrative simplification. Effective 2014 → Coverage can’t be denied based on pre-existing conditions. 13

Reforming the Delivery System Creates new ways to tie payments to quality improvement. → Accountable Care Organizations → Bundling Pilots → CMS Center for Innovation → Value-Based Purchasing → Geographic Variation → Medical Homes → Gainsharing → Medical Liability Demonstrations Prohibits physician self-referral to hospitals in which physicians have an ownership interest. 14

Source: Congressional Budget Office Financing Reform 15

Hospitals’ “Shared Responsibility” $155 billion over 10 years is mainly achieved through: → Reduced hospital updates → Medicare/Medicaid DSH payment reductions → Hospital readmissions policy → Hospital-acquired conditions But hospitals will experience reduced uncompensated care and additional revenue/payment for the newly insured. 16

Encouraging Quality and Safety The law encourages quality and safety by: → Establishing a national quality improvement strategy. → Creating a public-private institute to analyze the comparative effectiveness of treatments. → Creating a patient safety research center to promote best practices. → Taking steps to pay for QUALITY rather than VOLUME. “Pay for Reporting” systems for all providers. Value-Based Purchasing pilot systems for many providers. 17

The overarching strategic umbrella of healthcare reform Cuts to Existing FFS System Market basket reductions DHS cuts Nonpayment for anything preventable or unnecessary Cuts to Existing FFS System Market basket reductions DHS cuts Nonpayment for anything preventable or unnecessary Disrupt Existing System Bundled Payments Innovation Center Demonstrations ACOs Disrupt Existing System Bundled Payments Innovation Center Demonstrations ACOs Track 1Track 2

JanFebMarchAprilMayJuneJulyAugSepOctNovDec Hospital value-based purchasing (Proposed) 1/7/11 Program integrity - additional provider screening (Final) 1/21/11 Annual inpatient update + Readmission reduction program (Proposed ) Medicaid HACs (Proposed) State Innovation – Review & approval process (Proposed) Exchange (Proposed) Annual Inpatient update + Readmission reduction program (Final Transparency reports (PPSA) (Procedures) Target dates for release of proposed and final regulations in 2011 implementing provisions of the Affordable Care Act (these are fluid and likely to move) Long-term and CLASS Act (Proposed) Uniform explanation of benefits, coverage, definitions (Proposed) Accountable care organizations (Final) Regulations implementing reform: 2011 Hospital value-based purchasing (Final) Annual outpatient update (Proposed) Annual outpatient update (Final) Accountable care organizations (Proposed)

Future state Winners and losers Accountability & transparency People-centered primary care E-health and other innovations New focus on population health and social determinants Risk-based, value-driven reimbursement (P4P) Cost reductions Quality across the continuum and focus on transitions Smaller hospitals with more intensive care New roles of public and private sector (partnerships?) Intensive care Non-Acute/ specialty care Primary & preventative care TODAY 1766 Intensive care Non-Acute/ specialty care Primary & preventative care TOMORROW

Health Reform: Key Dates → Begins reductions in Medicaid & Medicare DSH → Provides 100% federal budget for cost of coverage for those who are “newly eligible” for Medicaid through → Federal funding declines to 95% of coverage cost in 2017, 94% in 2018 and 90% in 2019 → Begins state-based health benefits exchanges, through which individuals and small businesses with up to 100 employees can purchase coverage 22

Health Reform: Key Dates → Begins individual mandate for health insurance → Sets up an independent payment advisory board to recommend to Congress ways of reducing Medicaid spending − PPS hospitals are exempt. 23

Benefits of Reform The law: → Expands coverage to 32 million people. → Builds on employer-based insurance system. → Initiates major insurance reforms. → Sets in motion future payment and delivery system reforms. → Increases the focus on wellness and prevention. 24

The Environment: Trepidation 9% Unemployment 2010: Federal Spending 24% of GDP (highest since WWII) – Tax revenues 15% of GDP 2001 Debt: 33% of GDP; 2010 Debt = 62% of GDP If We Remain on the Current Course: – Deficit remains high through decade and debt will increase to 90% of GDP by – 2025: All Federal Revenues will Only Cover Interest Payments, Medicare, Medicaid, Social Security – 2035: Debt will Outstrip Entire Economy The Big Deficit Driver is Healthcare, Even w/o Reform 25

Election implications 2012 Jobs and deficit Healthcare focus: costs – Transparency – Pay for value (not volume); Test and scale: Innovation Center Implementation, oversight & investigations Coverage expansion? Republicans well positioned; another historic election? – 2012 Senate (23D/10R); Redistricting (195 R; 49 D;92 split;92 Comm), economy, jobs, Tea Party – Open seats: Bingaman (NM); Ensign, R-NV); Lieberman (CT), Conrad (ND), Kyl (AZ), Hutchinson (TX), Webb (VA); Akaka (HI) – (5Ds – 3Rs) We are not going back to the way things were. Best to proceed as though no change has occurred.

Presidential reelection and unemployment 27

Senate Total Members: 100 Needed for Majority: 51 Total Number of Democrats: 51 (Plus 2 Independents who caucus with them). Total Number of Republicans: 47 28

Largest State Budget Shortfalls on Record 29 *Reported to date Source: Center on Budget and Policy Priorities survey, revised December Implications: Maintenance of effort/state flexibility debate Provider tax limitations ($18.7/10 years) Long terms financial stains on state budgets

Questions? Steve Dickson President/CEO Stratagem